FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-8610
SBC COMMUNICATIONS INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
175 E. Houston, San Antonio, Texas 78205-2233
Telephone Number 210-821-4105
Securities registered pursuant to Section 12(b) of the Act: (See attached
Schedule A)
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )
Based on composite closing sales price on February 27, 1998, the aggregate
market value of all voting stock held by non-affiliates was $69,458,800,000.
As of February 27, 1998, 919,465,202 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of SBC Communications Inc.'s Annual Report to Shareowners for the
fiscal year ended December 31, 1997 (Parts I and II).
(2) Portions of SBC Communications Inc.'s Notice of 1998 Annual Meeting and
Proxy Statement dated March 11, 1998 (Parts III and IV).
<PAGE>
SCHEDULE A
Securities Registered Pursuant To Section 12(b) Of The Act:
Name of each exchange
Title of each class on which registered
Common Shares (Par Value $1.00 Per New York, Chicago and
Share) Pacific Stock Exchanges
7 3/4 % Exchangeable Notes, New York Stock Exchange
Due March 15, 2001
7.56% Pacific Telesis Group (PAC) New York Stock Exchange
Corporation-obligated mandatorily
redeemable preferred securities of
subsidiary trusts
8.5% PAC Corporation-obligated New York Stock Exchange
mandatorily redeemable preferred
securities of subsidiary trusts
<PAGE>
TABLE OF CONTENTS
Item Page
- ----- ----
PART I
1. Business....................................................... 4
2. Properties..................................................... 15
3. Legal Proceedings.............................................. 15
4. Submission of Matters to a Vote of Security Holders............ 15
Executive Officers of the Registrant.............................. 16
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 17
6. Selected Financial and Operating Data.......................... 17
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 17
7A. Quantitative and Qualitative Disclosures about Market Risk..... 17
8. Financial Statements and Supplementary Data.................... 20
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 20
PART III
10. Directors and Executive Officers of the Registrant............. 21
11. Executive Compensation......................................... 21
12. Security Ownership of Certain Beneficial Owners and Management. 21
13. Certain Relationships and Related Transactions................. 21
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 22
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
SBC Communications Inc. (SBC) is a holding company whose subsidiaries and
affiliates operate predominantly in the communications services industry. SBC's
subsidiaries and affiliates provide landline and wireless telecommunications
services and equipment, directory advertising, publishing and cable television
services. SBC's largest subsidiaries are Southwestern Bell Telephone Company
(SWBell), providing telecommunications services over approximately 16 million
access lines in Texas, Missouri, Oklahoma, Kansas and Arkansas (five-state
area), and Pacific Bell (PacBell), providing telecommunications services over
approximately 17 million access lines in California. SBC also provides
telecommunications services through its Nevada Bell subsidiary over
approximately 300 thousand access lines in Nevada. (SWBell, PacBell and Nevada
Bell are collectively referred to as the Telephone Companies.) The Telephone
Companies operate within an authorized region (in-region) providing local
exchange services and are subject to regulation by each state in which they
operate and by the Federal Communications Commission (FCC). SBC was incorporated
under the laws of the State of Delaware in 1983 and has its principal executive
offices at 175 E. Houston, San Antonio, Texas 78205-2233 (telephone number
210-821-4105).
SBC was one of the original seven regional holding companies (RHCs) formed to
hold AT&T Corp.'s (AT&T) local telephone companies. AT&T divested SBC by means
of a spin-off of stock to its shareowners on January 1, 1984 (divestiture). As a
result, SBC became a publicly traded company. The divestiture was made pursuant
to a consent decree, referred to as the Modification of Final Judgment (MFJ),
issued by the United States District Court for the District of Columbia
(District Court). With the mergers of SBC and Pacific Telesis Group (PAC), and
Bell Atlantic Corporation and NYNEX Corporation, there are now five RHCs.
COMPLETION OF MERGER WITH PAC
On April 1, 1997, SBC and PAC completed the merger of an SBC subsidiary with
PAC, in a transaction in which each outstanding share of PAC common stock was
exchanged for 1.4629 shares of SBC common stock (equivalent to approximately 626
million shares; both the exchange ratio and shares issued have been restated to
reflect the two-for-one stock split, effected in the form of a stock dividend,
declared January 30, 1998 with a record date of February 20, 1998 and payable
March 19, 1998). With the merger, PAC became a wholly-owned subsidiary of SBC.
The transaction was accounted for as a pooling of interests and a tax-free
reorganization.
Post-merger initiatives
Several strategic decisions resulted from the merger integration process. The
decisions resulted from an extensive review of operations throughout the merged
company and include significant integration of operations and consolidation of
some administrative and support functions.
Reorganization
SBC is centralizing several key functions that will support the operations of
the Telephone Companies, including network planning, strategic marketing and
procurement. It is also consolidating a number of corporate-wide support
activities, including research and development, information technology,
financial transaction processing and real estate management. The Telephone
Companies will continue as separate legal entities. These initiatives will
result in the creation of some jobs and the elimination and realignment of
others, with many of the affected employees changing job responsibilities and in
some cases assuming positions in other locations.
SBC recognized charges during 1997 in connection with these initiatives. The
charges were comprised mainly of postemployment benefits, primarily related to
severance, and costs associated with closing down duplicate operations,
primarily contract cancellations. Other charges arising out of the merger
relating to relocation, retraining and other effects of consolidating certain
operations are being recognized in the periods those charges are incurred.
Additional information on these charges is contained in Note 3 of the 1997 SBC
Annual Report to Shareowners, and is incorporated herein by reference pursuant
to General Instruction G(2).
MERGER WITH SOUTHERN NEW ENGLAND
TELECOMMUNICATIONS CORPORATION
On January 5, 1998, SBC and Southern New England Telecommunications Corporation
(SNET) jointly announced a definitive agreement to merge an SBC subsidiary with
SNET, in a transaction in which each share of SNET common stock will be
exchanged for 1.7568 shares of SBC common stock (equivalent to approximately 120
million shares; both the exchange ratio and shares to be issued have been
restated to reflect the two-for-one stock split declared January 30, 1998). The
transaction is intended to be accounted for as a pooling of interests and to be
a tax-free reorganization. Additional information on this matter is contained in
Note 4 of the 1997 SBC Annual Report to Shareowners, and is incorporated herein
by reference pursuant to General Instruction G(2).
FEDERAL LEGISLATION AND THE MFJ
On February 8, 1996, the Federal Government enacted the Telecommunications Act
of 1996 (the Telecom Act), a major, wide-ranging amendment to the Communications
Act of 1934.
By its specific terms, the Telecom Act supersedes the jurisdiction of the
District Court with regard to activities occurring after the date of enactment.
The FCC is given authority for all post-enactment conduct, with the District
Court retaining jurisdiction of pre-enactment conduct for a five-year period. As
a result of these provisions, on April 11, 1996 the District Court issued its
Opinion and Order terminating the MFJ and dismissing all pending motions as
moot, thereby effectively ending 13 years of RHCs regulation under the MFJ.
In July 1997, SBC brought suit in the U.S. District Court for the Northern
District of Texas (U.S. Court), seeking a declaration that a portion of the
Telecom Act is unconstitutional on the grounds that it improperly discriminates
against the Telephone Companies by name by imposing restrictions that prohibit
SBC from offering interLATA (Local Access Transport Area) long-distance and
other services in-region that other Local Exchange Carriers (LECs) are free to
provide. The suit challenged only that portion of the Telecom Act that excluded
SBC from competing in certain lines of business. On December 31, 1997 the Court
issued a ruling declaring unconstitutional, among other things, the prohibitions
on SBC providing interLATA long-distance in-region. The FCC and competitor
intervenors sought and received a stay of the decision by the Court, and SBC
anticipates further opposition to this ruling from the Justice Department and
interexchange carriers, but is unable to predict the outcome of subsequent
appeals. Additional information relating to the Telecom Act is contained in the
1997 SBC Annual Report to Shareowners under the heading "Competitive
Environment" beginning on page 25, and is incorporated herein by reference
pursuant to General Instruction G(2).
<PAGE>
BUSINESS OPERATIONS
SBC is among the largest telecommunications companies in the United States, with
approximately 33 million access lines and approximately 5.5 million wireless
customers in the United States. SBC serves the nation's two most populous
states, California and Texas as well as 7 of the country's 10 largest
metropolitan areas, 16 of the country's 50 largest metropolitan areas, and has
investments in telecommunications businesses in selected international markets,
including Mexico, France, South Africa, Chile, South Korea, The United Kingdom,
Switzerland, Israel and Taiwan. SBC's broad operations offer customers an
expansive range of services and products, varying by market, including: local
exchange services, wireless communications, long-distance, Internet services,
telecommunications equipment, enhanced services, and directory advertising.
Services and products are provided through several subsidiaries, which include:
the Telephone Companies, Southwestern Bell Mobile Systems, Inc. including its
affiliates (Mobile Systems), Pacific Bell Mobile Services (PBMS), SBC
International, Inc. (SBC International), Southwestern Bell Yellow Pages, Inc.
(SWBYP), Pacific Bell Directory (PBD), Southwestern Bell Messaging Services,
Inc. (SMSI), Pacific Bell Information Services (PBIS), Pacific Bell Internet
(PBI), Southwestern Bell Internet Services (SBIS), and SBC Media Ventures, Inc.
(Media Ventures). These services and products (which are described more fully
below) include landline and wireless telecommunications services, sales of
advertising for and publication of yellow pages and white pages directories,
sales of customer premises, private business exchange (PBX) and wireless
equipment, enhanced services, Internet services, and cable television services.
Wireless telecommunications services are provided by Mobile Systems and PBMS
(collectively SBC Wireless). Landline telecommunications services are provided
to the in-region states by the Telephone Companies. In December 1996,
substantially all of the operations of Southwestern Bell Telecommunications,
Inc. (Telecom) moved into the operations of SWBell with enhanced services being
moved into SMSI.
SBC's revenues are categorized for financial reporting purposes as local service
(substantially all of which was provided by the Telephone Companies and SBC
Wireless), network access (provided by the Telephone Companies), long-distance
service (substantially all of which was provided by the Telephone Companies and
SBC Wireless), directory advertising (principally provided by SWBYP and PBD) and
other (including equipment sales at SBC Wireless and SWBell, nonregulated
products and services provided by the Telephone Companies, billing and
collection services for interexchange carriers provided by the Telephone
Companies, Internet services provided by PBI and SBIS, and cable television
services provided by Media Ventures). With the passage of the Telecom Act, SBC
Wireless offers interLATA and intraLATA wireless long-distance services. In
1996, two SBC subsidiaries, Southwestern Bell Communications Services, Inc.
(SBCS) and Pacific Bell Communications, began offering landline interLATA
long-distance services to customers in selected areas outside the Telephone
Companies' authorized regions (out-region). The Telephone Companies provide
intraLATA long-distance services in-region.
The following table sets forth for SBC the percentage of total operating
revenues by any class of service which accounted for 10% or more of total
operating revenues in any of the last three fiscal years.
- ----------------------------------------------- -------------------------------
Percentage of Total
Operating Revenues
- ----------------------------------------------- -------------------------------
1997 1996 1995
- ----------------------------------------------- ---------- --------- ----------
Local service:
Landline 38% 36% 37%
Wireless 12% 11% 10%
Network access 23% 24% 25%
- ----------------------------------------------- ---------- --------- ----------
<PAGE>
Communication Services
Communication services include local, long-distance and network access services.
Local services involve the transport of landline and wireless telecommunications
traffic between telephones and other customer premises equipment (CPE) located
within the same local service calling area. Local services include: basic local
exchange service, certain extended area service, dedicated private line services
for voice and special services, directory assistance and various vertical
services, including custom calling services, call control options and Caller ID
services. Until the passage of the Telecom Act, SBC's long-distance services
involved the transport of intraLATA telecommunications traffic, except for
certain wireless service areas that cover more than one LATA, for which SBC had
obtained MFJ waivers. In addition to these services, beginning in 1996, SBC
provided both interLATA and intraLATA cellular long-distance services to its
wireless customers, as well as landline interLATA long-distance services in
selected out-region areas. Long-distance services also include other services
such as Wide Area Telecommunications Service (WATS or 800 services) and other
special services. Network access services connect a subscriber's telephone or
other equipment to the transmission facilities of other carriers that provide
long-distance (principally interLATA) and other communications services. Network
access services are either switched, which use a switched communications path
between the carrier and the customer, or special, which use a direct nonswitched
path.
Landline Network Services
During the latter half of 1996 and over the course of 1997, the Telephone
Companies have been offering certain services on a "wholesale" basis to
competitors, as well as providing elements of the Telephone Companies' networks
on an "unbundled" basis for local competition. These services are being offered
as specified by the Telecom Act and state actions and agreements. That
legislation and the regulations promulgated by state and federal agencies to
implement it have resulted in SBC facing increased competition in significant
portions of its business. At December 31, 1997 SBC provided wholesale services
to approximately 500 thousand access lines. Management cannot quantify the
impact to SBC's business in 1998 from local exchange competition, as uncertainty
exists as to the breadth and scope of competitors' offering of local exchange
services to all portions of the market in-region, and as certain regulations,
tariffs and negotiations governing such competition are not yet finalized.
The Telephone Companies are SBC's largest subsidiaries, providing approximately
82% of SBC's operating revenues in 1997. The Telephone Companies provide their
services to approximately 20.9 million residential and 12.1 million business
access lines in the seven states in which they operate. During 1997 total access
lines grew by 5%, of which 50% of the increase was due to growth in California
and over 30% of the increase was due to growth in Texas.
During 1997, the Telephone Companies continued to expand their offering of
vertical services throughout their operating areas. These services include,
among other things Caller ID, a feature which displays the telephone number of
the person calling and the caller's name in certain markets; Call Return, a
feature that redials the number of the last incoming call; and Call Blocker, a
feature which allows customers to automatically reject calls from a designated
list of telephone numbers.
SMSI provides voice messaging services under the registered trademark CallNotes
to residential and business customers. PBIS has several registered trademark
products, which include residential voice messaging services (The Message
Center), business messaging services (Pacific Bell Voice Mail), and business
call management services (Pacific Bell Call Management). During 1996, PBI and
SBIS began providing Internet services in selected in-region metropolitan areas.
Internet access services were introduced throughout many other in-region
metropolitan areas in 1997.
Wireless
At the end of 1997, Mobile Systems provided wireless services to 5,068,000
customers over its traditional cellular networks, or 12.2 out of every 100
residents in its service areas. Mobile Systems provides services in 39
metropolitan markets in 10 states and the District of Columbia, including 5 of
the nation's top 15 metropolitan areas, as follows: Washington, D.C.; Chicago,
Illinois; Boston, Massachusetts; St. Louis, Missouri; and Dallas-Fort Worth,
Texas. Mobile Systems is licensed to provide service in 40 rural service areas
(RSA) and is currently providing service in all of these markets. Each RSA is
contiguous to an existing metropolitan service area or another RSA operated by
Mobile Systems, which allows for the expansion of service in a way that may add
value to customers' service. Mobile Systems also operates one RSA in Arkansas
under an interim operating authority granted by the FCC.
In January 1997, Mobile Systems began doing business within the five-state area
as Southwestern Bell Wireless, Inc. Mobile Systems operates in out-region areas
under the name of Cellular One by means of licenses from Cellular One Group, a
partnership among affiliates of Mobile Systems, AT&T Wireless Services and
Vanguard Cellular Systems, Inc. These areas include metropolitan service areas,
such as Washington, D.C.; Chicago, Illinois; Albany, Buffalo, and Rochester, New
York and Boston, Massachusetts; and rural service areas in Illinois,
Massachusetts, New York, Virginia and West Virginia. Cellular One does or can
offer, on a resale basis, landline interLATA long-distance service in all
out-region markets where it provides local wireless service. In January 1997,
Cellular One also began offering landline local service, on a resale basis, in
Rochester, New York.
In October 1994, SBC formed a long-term marketing alliance between Mobile
Systems and GTE in Texas. This alliance has enabled both Mobile Systems and GTE
to offer wireless service in each other's Texas wireless markets, using the host
company's wireless system. As a result, Mobile Systems provides wireless service
in Houston, Austin and Beaumont and has the right, under this alliance, to
market wireless service in a number of additional markets including El Paso and
Galveston.
Mobile Systems now offers digital service, including advanced features in most
of the metropolitan areas where it's licensed to provide wireless service.
Mobile Systems first began providing commercial digital service in Chicago in
July 1993. Digital service improves sound quality, provides a greater degree of
privacy on individual calls, increases call-handling capacity of the networks,
allows additional service offerings, and reduces exposure to billing fraud.
Mobile Systems also markets wireless communications equipment in each of its
service areas.
In 1993, the FCC adopted an order allocating radio spectrum and outlining the
development of licenses for new personal communications services (PCS). PCS
utilizes wireless telecommunications digital technology at a higher frequency
radio spectrum than cellular using lower powered transmission equipment. Like
cellular, it is designed to permit access to a variety of communications
services regardless of subscriber location. In an FCC auction, which concluded
in March 1995, PCS licenses were awarded in 51 major markets. SBC or affiliates
acquired PCS licenses in the Major Trading Areas (MTAs) of Los Angeles-San
Diego, California; San Francisco-San Jose, California; Memphis, Tennessee;
Little Rock, Arkansas; and Tulsa, Oklahoma. The California licenses cover
substantially all of California and Nevada. SBC is currently operational in all
of its major California-Nevada markets and Tulsa, Oklahoma. During 1996, SBC
received several AT&T cellular networks in Arkansas in exchange for SBC's PCS
licenses in Memphis, Tennessee and Little Rock, Arkansas and other
considerations.
PBMS was formed to offer PCS services across California and Nevada. The network
incorporates the Global System for Mobile Communications (GSM) standard, which
is widely used internationally, and its phones feature a built-in pager and
answering machine. PBMS began trials in August 1996 and began offering services
in January 1997, and by mid-1997 provided widespread offerings of PCS services
to all of California and Nevada. At the end of 1997, PBMS provided wireless
services to 340,000 customers over its PCS networks.
In an FCC auction concluded in January 1997, SBC acquired the following
additional PCS licenses for Basic Trading Areas (BTAs) that are within the
five-state area: Springfield, Missouri; McAlester, Oklahoma; Joplin, Missouri;
Pittsburgh, Kansas; Temple-Killeen, Texas; Waco, Texas; Tyler, Texas and
Longview-Marshall, Texas.
Overall, at the end of 1997, SBC Wireless operations provided local wireless
services to 5,493,000 customers throughout its wireless markets. In addition,
since the Telecom Act passed, Mobile Systems began providing wireless
long-distance service to its wireless customers, and at year-end 1997 had been
selected as the long-distance carrier by approximately 3,286,000, or 63 percent,
of its wireless customers.
International
Mexico
A consortium consisting of SBC International, together with a subsidiary of
France Telecom and a group of Mexican investors led by Grupo Carso, S.A. de C.V.
(Grupo Carso), has voting control of Telefonos de Mexico, S.A. de C.V. (Telmex),
Mexico's largest national telecommunications company, through its ownership of
all of Telmex's Class AA shares. The Mexican investors have voting control of
the consortium. During 1996, Grupo Carso transferred its Telmex interest to a
spin-off company named Carso Global Telecom, S.A. de C.V. This transaction had
no effect on SBC International's Telmex holdings. SBC International also owns
Class L shares, which have limited voting rights. Telmex made significant
purchases under various share repurchase programs from 1995 through 1997, buying
back 23% of its stock. Throughout 1997 and in February 1998, SBC International
sold portions of its Class L shares to Telmex so that SBC's total equity
investment (including both AA shares and L shares) was slightly below 10% of
Telmex's total equity capitalization. Telmex provides complete landline and
wireless telecommunications services within Mexico. At the end of 1997, Telmex
had 9.3 million access lines in service and provided cellular service to
approximately 1.1 million subscribers. Telmex began providing cable television
services through its purchase in 1995 of a 49% stake of Grupo Televisa's cable
television subsidiary, Cablevision. In March 1997, SBC issued approximately $396
million in debt due March 2001 which, at SBC's option, may be redeemed upon
maturity either in cash or Telmex L shares (equivalent to up to 2.4% of Telmex's
equity capitalization at March 31, 1997).
France
In October 1994, SBC International formed a strategic alliance with Compagnie
Generale des Eaux (CGE), a French diversified public company. Through this
alliance, SBC International acquired an indirect 10% ownership of Societe
Francaise du Radiotelephone S.A. (SFR), a nationwide cellular company in France,
and minority ownership interests in other communications businesses controlled
by CGE, and CGE obtained an effective 10% interest in SBC's wireless operations
in Washington, D.C.- Baltimore, and surrounding rural markets. SBC and CGE both
made contributions to the alliance. In 1997, SBC International contributed its
indirect 10% ownership of SFR shares and an additional $240 million to acquire a
15% interest in Cegetel, S.A., a new French company formed by CGE to provide a
broad base of telecommunications services throughout France. Operations on a
limited scale are scheduled to begin during the first half of 1998. At the end
of 1997, SFR had 2.2 million wireless subscribers.
Chile
In February 1995, SBC International purchased 40% of VTR S.A. (VTR), a privately
owned telecommunications holding company in Chile. During 1996 SBC International
increased its stake to 49% through the purchase of shares from a minority
investor. VTR is 51% indirectly owned by Grupo Luksic (Luksic), a large Chilean
conglomerate. During 1997, Luksic exercised an option to purchase more shares of
VTR from SBC International, reducing SBC's ownership to 44%. Through its
subsidiaries, VTR provides local, long-distance, wireless and cable television
services in Chile. In December 1997, VTR sold its wireless service operations.
At the end of 1997, local services were provided to approximately 123,000 access
lines and cable television services were provided to approximately 367,000
subscribers.
United Kingdom
In October 1995, SBC International combined its United Kingdom cable television
operations, which included Midlands Cable Communications and Northwest Cable
Communications, with those of TeleWest Communications, P.L.C., a publicly held
joint venture between Telecommunications, Inc. and U S WEST, Inc. The resulting
entity, TeleWest P.L.C., is the largest cable television operator in the United
Kingdom and also provides local exchange services. SBC International owns
approximately 15% of TeleWest P.L.C.
Israel
SBC International through its subsidiaries holds a minority interest in Golden
Channels, a cable television provider in Israel. At the end of 1997, Golden
Channels' systems passed 449,000 households and provided service to
approximately 292,000 households, a penetration rate of approximately 65%. SBC
International also has interests in companies involved in the publication of
yellow pages directories, and marketing directory and other software in Israel.
In 1996, a consortium in which SBC International participated received one of
two licenses for international telecommunications service in Israel. Other
consortium members are STET (Italy's national telephone company), the US/Israeli
Aurec Group, and the Israeli Globescom and Kahn groups. At the present time, the
award of these licenses is undergoing judicial review.
Australia
In 1997, SBC International sold its directory interests in Australia to Telstra
Corporation Limited, the principal provider of telecommunications services in
Australia.
South Africa
In 1997, SBC International acquired an effective 18% stake in Telkom, S.A.
Limited (Telkom), South Africa's state-owned local exchange, long distance, and
cellular company. SBC International's partner in the acquisition is Telekom
Malaysia, which acquired a 12% stake in Telkom. SBC International's still holds
its 15.5% ownership stake in MTN, one of South Africa's two national cellular
companies, but is obligated to divest it as part of the acquisition of Telkom.
At the end of 1997, Telkom provided local exchange services to 4.5 million
access lines. Telkom provides long-distance service to all of its local exchange
customers.
<PAGE>
Switzerland
In June 1997, SBC International purchased a 40% interest in diAx, a new company
formed by SBC International and a Swiss-based company. diAx is currently
building a network to provide long-distance telephone service in Switzerland.
The target date for commencement of service is mid-1998.
China
In December 1997, SBC International signed a Cable and Maintenance Agreement
with China Telecom and twelve other telecommunications companies to construct a
direct undersea cable link between the United States and China. The cable is
expected to be completed by the year 2000.
South Korea
SBC also has wireless interests in South Korea where its affiliate provided
wireless service to approximately 1.1 million subscribers at the end of 1997.
Taiwan
SBC International owns a 20% interest in a consortium that formed TransAsia
Telecommunications, Inc., a new cellular service provider in Taiwan.
Offering of services commenced in January 1998.
Directory Advertising
SWBYP publishes more than 43 million books, representing approximately 347
directories, principally within the five-state area. PBD, the publisher of
Pacific Bell SMART Yellow Pages, publishes 35 million books, representing
approximately 112 directories in California and Nevada. SBC recognizes all
directory advertising revenues and expenses in the month the related directory
is published. SWBYP's nine largest revenue-producing yellow pages directories
are currently published in the second half of SBC's fiscal year, while PBD's
publishing schedule is spread throughout the year for its directories. SWBYP's
directories are printed by R.R. Donnelley & Sons and PBD's directories are
printed by World Color Press.
Customer Premises Equipment and Other Equipment Sales
In December 1996, substantially all of the operations of Telecom were moved into
the operations of SWBell. Equipment offerings range from single-line and
cordless telephones to sophisticated digital PBX systems. PBX is a private
telephone switching system, usually located on a customer's premises, which
provides intra-premise telephone services as well as access to the public
switched network. Telecom, through an exclusive, long-term distribution
agreement with Conair Corporation, also markets a full line of residential
telephones to retailers nationwide, under the Southwestern Bell Freedom Phone
name.
Domestic Video Services
As part of the changes in strategic direction of the post-merger initiatives,
SBC announced during 1997 that it is scaling back its limited direct investment
in a number of video services. Additional information on these matters is
contained in Note 3 of the 1997 SBC Annual Report to Shareowners, and is
incorporated herein by reference pursuant to General Instruction G(2). As part
of this curtailment, SBC has halted construction on the Advanced Communications
Network (ACN) in California. As part of an agreement with the ACN vendor, SBC
paid the liabilities of the ACN trust that owns and finances ACN construction
and incurred costs to shut down all construction previously conducted under the
trust and receive certain consideration from the vendor. SBC also curtailed
several other video-related activities, including its broadband network video
trials in Richardson, Texas. SBC has also substantially scaled back its
involvement in the Tele-TV joint venture.
Media Ventures owns two cable television systems serving the suburban
Washington, D.C. area. Cable TV Montgomery serves Montgomery County, Maryland
and Cable TV Arlington serves Arlington County, Virginia. At the end of 1997,
these systems passed 432,000 homes and served 278,000 customers. In August 1996,
Media Ventures contributed Cable TV Montgomery and Cable TV Arlington to SBC
Media Ventures, LP (Partnership), a recently formed partnership between Media
Ventures and affiliates of Prime Cable (Prime). Media Ventures became the
general partner and retained an approximate 95% ownership interest in the
Partnership. Prime contributed $20 million to the Partnership and now manages
the cable systems on behalf of the Partnership. In October 1997, SBC entered a
definitive agreement to sell Media Ventures' interest in the Partnership to
Prime and other investors. These transactions are expected to close during 1998.
On the same date, SBC entered into definitive agreements to sell its interests
in Prime Cable of Chicago, Inc. to Prime and other investors. A PAC subsidiary
had acquired these interests prior to the merger with SBC.
During 1995, SBC became an equal partner in a venture with Ameritech
Corporation, BellSouth Corporation, GTE, and The Walt Disney Company, to design,
market and deliver video programming and interactive services. In 1996, SNET
became a minority partner in this venture. In mid-1997, SBC Interactive Media,
Inc. (SBC Interactive), a wholly-owned subsidiary of SBC, notified the venture
of its withdrawal. On October 7, 1997 the remaining partners in the venture
attempted to initiate arbitration against SBC Interactive regarding the validity
of its withdrawal. On October 15, 1997, SBC Interactive filed a declaratory
judgement action in and sought a preliminary injunction from Delaware Chancery
Court to halt the arbitration attempt. On December 24, 1997, the Chancery Court
directed that the arbitration proceed, and on January 22, 1998, SBC appealed
that ruling. This matter is still being litigated.
In connection with the post-merger initiatives, SBC reviewed the carrying values
of certain wireless video assets and other related long-lived assets. This
review included estimating remaining useful lives and cash flows and identifying
certain assets to be abandoned. Where this review indicated impairment,
discounted cash flows related to those assets were analyzed to determine the
amount of the impairment. In 1997, SBC recognized impairments and took writeoffs
of equipment related to the wireless digital TV operations in southern
California.
GOVERNMENT REGULATION
In the in-region states, the Telephone Companies are subject to regulation by
state commissions which have the power to regulate, in varying degrees,
intrastate rates and services, including local, long-distance and network access
(both intraLATA and interLATA access within the state) services. The Telephone
Companies are also subject to the jurisdiction of the FCC with respect to
interstate and international rates and services, including interstate access
charges. Access charges are designed to compensate the Telephone Companies for
the use of their facilities for the origination or termination of long-distance
and other communications by other carriers. There are currently no access
charges for access to the Internet.
Additional information relating to federal and state regulation of the Telephone
Companies is contained in the 1997 SBC Annual Report to Shareowners under the
heading "Regulatory Environment" on page 23, and is incorporated herein by
reference pursuant to General Instruction G(2).
SBC's cable systems are subject to federal and local regulation, including
regulation by the FCC and local franchising authorities, concerning rates,
service and programming access.
IMPORTANCE, DURATION AND EFFECT OF LICENSES
The FCC authorizes the licenses for multiple wireless carriers in each
geographic market. The cellular licenses, of which there are only two in each
geographic region have a standard duration of ten years, and upon application
and a showing of compliance with FCC use and conduct standards may be renewed.
Renewal applications were filed in the following markets during 1997: Abilene,
Texas; Brownsville-Harlingen, Texas; Champaign-Urbana-Rantoul, Illinois;
Decatur, Illinois; McAllen-Edinburgh-Mission, Texas; Midland, Texas; Odessa,
Texas; Springfield, Illinois and Fayetteville-Springdale, Arkansas. Renewals for
these licenses were granted in January 1998. Renewal applications will be filed
in the following markets during 1998: Bloomington-Normal, Illinois; Glen Falls,
New York; Laredo, Texas; Little Rock-North Little Rock, Arkansas; and Pine
Bluff, Arkansas.
Under the auction process of an FCC order outlining the development of PCS,
licenses with durations of ten years were awarded in 51 major markets. SBC's
licenses for Los Angeles-San Diego, California, San Francisco-San Jose,
California and Tulsa, Oklahoma expire in 2005. These licenses, upon application
and a showing of compliance with FCC use and conduct standards, may be renewed.
Cable television systems generally are operated under nonexclusive permits or
"franchises" granted by local governmental authorities. SBC operates its
suburban Washington, D.C. cable systems under franchises granted by Montgomery
County, Maryland, which expires in May 1998; Arlington County, Virginia, which
expires in October 2000; and the City of Gaithersburg, Maryland, which expires
in November 2001. During 1995, SBC received a franchise to operate a cable
system in Richardson, Texas, which expires in September 2013. Each franchise is
renewable upon a showing of compliance with established local and federal
standards. A number of SBC subsidiaries hold FCC channel licenses for wireless
video services. These subsidiaries also have numerous leases with Instructional
Television Fixed Service (ITFS) channel licensees to use their excess channel
capacity. The channels under these licenses and leases are primarily in southern
California.
MAJOR CUSTOMER
No customer accounted for more than 10% of SBC's consolidated revenues in 1997,
1996 or 1995.
COMPETITION
Communication Services
Information relating to competition in the communications industry is contained
in SBC's Annual Report to Shareowners for 1997 under the heading "Competitive
Environment" beginning on page 25, and is incorporated herein by reference
pursuant to General Instruction G(2).
International
Information relating to international competition is contained in SBC's Annual
Report to Shareowners for 1997 under the heading "International" on page 28, and
is incorporated herein by reference pursuant to General Instruction G(2).
<PAGE>
Directory Advertising and Publishing
Both SWBYP and PBD face competition from over 100 publishers of printed
directories in their operating areas. Direct and indirect competition also exist
from other advertising media, including newspapers, radio, television, and
direct mail providers, as well as from directories offered over the Internet.
Customer Premises Equipment and Other Equipment Sales
SBC faces significant competition from numerous companies in marketing its
telecommunications equipment.
RESEARCH AND DEVELOPMENT
Certain company-sponsored basic and applied research was conducted at Bell
Communications Research, Inc. (Bellcore). The Telephone Companies owned a
two-seventh interest in Bellcore, with the remainder owned by the other four
remaining RHCs. In November 1997, the sale of Bellcore was completed. The RHCs
have retained the activities of Bellcore that coordinate the Federal
Government's telecommunications requirements for national security and emergency
preparedness.
Applied research is also conducted at SBC Technology Resources, Inc. (TRI), a
subsidiary of SBC. TRI provides research, technology planning and evaluation
services to SBC and its subsidiaries.
EMPLOYEES
As of December 31, 1997, SBC and its subsidiaries employed 118,340 persons.
Approximately 67% of the employees are represented by the Communications Workers
of America (CWA). Contracts covering an estimated 73,000 employees between the
CWA and the Telephone Companies end in August 1998. New contracts are scheduled
to be negotiated in 1998. A three-year contract (which covers an estimated 2,000
employees) was negotiated between the CWA and SWBYP, which became effective in
December 1995. A new contract is scheduled to be negotiated in 1998. In 1995,
PBD negotiated two new three-year contracts with the International Brotherhood
of Electrical Workers (IBEW), covering approximately 1,600 employees in northern
and southern California. PBD also is scheduled to negotiate new contracts with
the IBEW in 1998. The CWA also represents an estimated 2,000 employees in other
subsidiaries of SBC.
<PAGE>
ITEM 2. PROPERTIES
The properties of SBC do not lend themselves to description by character and
location of principal units. At December 31, 1997, 94% of the property, plant
and equipment of SBC was owned by the Telephone Companies. Network access lines
represented 42% of the Telephone Companies' investment in telephone plant;
central office equipment represented 39%; land and buildings represented 10%;
other miscellaneous property, comprised principally of furniture and office
equipment and vehicles and other work equipment, represented 6%; and information
origination/termination equipment represented 4%.
ITEM 3. LEGAL PROCEEDINGS
Six putative class actions in Texas, Missouri, Oklahoma, and Kansas that
involved the provision by SWBell of maintenance and trouble diagnosis services
relating to telephone inside wire located on customer premises have been
settled. These actions alleged that SWBell's sales practices in connection with
these services violated antitrust, fraud and/or deceptive trade practices
statutes. The trial court has approved the settlement, which is not expected to
materially affect the financial results of SBC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareowners in the fourth quarter of the
fiscal year covered by this report.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position Held Since
Edward E. Whitacre,Jr. 56 Chairman and Chief Executive Officer 1-90
John H. Atterbury III 49 Senior Vice President - International 6-97
Operations
Royce S. Caldwell 59 President - SBC Operations 7-95
Cassandra C. Carr 53 Senior Vice President - Human Resources 5-94
William E. Dreyer 60 Senior Executive Vice President - 7-93
External Affairs
James D. Ellis 54 Senior Executive Vice President and 3-89
General Counsel
Charles E. Foster 61 Group President - SBC 7-95
James S. Kahan 50 Senior Vice President - Corporate 7-93
Development
Donald E. Kiernan 57 Senior Vice President, Treasurer and 7-93
Chief Financial Officer
Stanley T. Sigman 50 President and Chief Executive Officer 4-97
SBC Wireless Inc.
All of the above executive officers have held high-level managerial positions
with SBC or its subsidiaries for more than the past five years. Executive
officers are not appointed to a fixed term of office.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The number of shareowners of record as of December 31, 1997 and 1996 were
1,059,158 and 800,465. Other information required by this Item is included in
the SBC Annual Report to Shareowners for the fiscal year ended December 31, 1997
under the headings "Quarterly Financial Information" on page 45, "Selected
Financial and Operating Data" on page 18, and "Stock Trading Information" on the
inside of back cover, which are incorporated herein by reference pursuant to
General Instruction G(2).
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1997 under the heading
"Selected Financial and Operating Data" on page 18 which is incorporated herein
by reference pursuant to General Instruction G(2).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1997 on page 19 through page
30, which is incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative Information about Market Risk
- --------------------------------------------------------------------------------
Foreign Exchange Risk Sensitivity Analysis
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31, US Dollar Value Net Underlying Net Exposed Foreign Exchange
1997 of Net Foreign Foreign Long/Short Loss from a 10%
(millions of $) Exchange Currency Currency Depreciation of
Contracts Transaction Position the US dollar
Exposures
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Swiss Franc $ 14 $ 14 $ 0 $0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Japanese Yen 142 142 0 0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Exposure $ 156 $156 $0 $0
- --------------------------------------------------------------------------------
The preceding table describes the effects of a change in the value of the Swiss
franc and Japanese yen. Since the identified exposure is fully covered with
forward contracts, changes in the value of the US dollar which affect the value
of the underlying foreign currency commitment are fully offset by changes in the
value of the foreign currency contract. Were the underlying currency transaction
exposure to change, the resulting mismatch would expose the company to currency
risk of the foreign exchange contract. For this reason, all contracts are
related to firm commitments and matched by maturity and currency.
<PAGE>
- --------------------------------------------------------------------------------
Equity Price Risk Sensitivity Analysis
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31, 1997 Net Value of Net Loss from a 40%
(millions of $) Appreciated Underlying Exposed Increase in the
Value of Employee Long/Short price of AirTouch
Equity Swap Stock Option Equity Common
Contract Exposures Position
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AirTouch $12 $14 $2 $(.8)
Communications
Inc. (AirTouch)
Common
- --------------------------------------------------------------------------------
The table above describes the effects of an appreciation in the price of
AirTouch common used in settlement of employee stock options. At December 31,
1997 the notional value of an equity swap contract entered in 1994 had
appreciated by $12 million, while the value of the underlying options for
AirTouch common had increased to $14 million, a difference of $2 million. If the
obligations under the options granted were left exposed to a 40 percent rise in
the value of the stock, the result would have been an $800,000 loss. Since 1995
the average yearly rate of change in the price of AirTouch common stock has
ranged from 25%-40%. The equity swap contract expires April 1999.
<TABLE>
- ----------------------------------------------------------------------------------------
Interest Rate Risk Related to Debt Derivatives
Table Presentation
- ----------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------
Interest Exposure Exposure Exposure Exposure Exposure Exposure There- Fair Market
Rate Swaps 1997 1998 1999 2000 2001 2002 after Value as of
12/31/97
(millions of $)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receive -0- -0- $50 -0- -0- -0- -0- $1.0
Variable/Pay
Fixed
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Fixed Rate 7.2% 7.2% 7.2% -0- -0- -0- -0-
Payable
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Variable 5.66% Constant Constant -0- -0- -0- -0-
Rate Maturity Maturity
Receivable Treasury Treasury
Rate Rate
minus minus
.20% .20%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Receive -0- -0- -0- -0- -0- -0- $10.2* $.4
Variable/Pay
Fix
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Fixed Rate 6.705% 6.705% 6.705% 6.705% 6.705% 6.705% 6.705%
Payable
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Variable 5.9375% One One One One One One
Rate Month Month Month Month Month Month
Receivable LIBOR LIBOR LIBOR LIBOR LIBOR LIBOR
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Receive -0- -0- -0- -0- -0- -0- $2.9* $.1
Variable/Pay
Fix
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Fixed Rate 6.555% 6.555% 6.555% 6.555% 6.555% 6.555% 6.555%
Payable
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Variable 5.9375% One One One One One One
Rate Month Month Month Month Month Month
Receivable LIBOR LIBOR LIBOR LIBOR LIBOR LIBOR
- ----------------------------------------------------------------------------------------
<FN>
* Both swaps mature on April 30, 2004
</FN>
</TABLE>
The above table describes the results of entering an interest rate swap for the
purpose of providing variable rate payment streams to pay a floating rate note,
in exchange for fixed rate payments. As a result of interest rate fluctuations
if SBC were to terminate the contract it would be required to pay $1.5 million
to replace the fixed rate flow. SBC does not intend to terminate the contract as
it is linked to a bond issued by SBC.
Qualitative Information about Market Risk
Foreign Exchange Risk
SBC has operations in ten countries. From time to time SBC is required to make
investments, receive dividends, or borrow funds in foreign currency. To maintain
the dollar cost of the investment or limit the dollar cost of the funding, SBC
will enter into forward foreign exchange contracts. The contracts are used to
provide currency at a fixed rate. SBC's policy is to measure the risk of adverse
currency fluctuations by calculating the potential dollar losses resulting from
changes in exchange rates that have a reasonable probability of occurring.
Changes that exceed acceptable loss limits require that SBC cover the exposure.
SBC does not speculate in foreign exchange markets, and does not hedge all
foreign exchange exposures due to uncertainty in foreign exchange cash flows.
Equity Risk
PAC entered into an equity swap contract to hedge exposure to risk of market
changes related to its recorded liability for outstanding employee stock options
for common stock of AirTouch (spun-off operations). PAC plans to make open
market purchases of the stock of spun-off operations to satisfy its obligation
for options that are exercised. Off-balance-sheet risk exists to the extent the
market price of AirTouch rises in value. The equity swap was entered into to
hedge this exposure and minimize the impact of market fluctuations. The contract
entitles PAC to receive settlement payments to the extent the price of the
common stock of spun-off operations rises above the notional value of $23.74 per
share, but imposes an obligation to make payments to the extent the price
declines below this level. The swap also obligates PAC to make a monthly payment
of a fee based on LIBOR. The additional cost of AirTouch shares is offset by the
gain in the value of the shares obtained by proportionate sales of the swap. SBC
does not seek to profit from changes in the value of the swap. For this reason
the swap transactions are matched to exercise activity as closely as possible.
Interest Rate Risk
SBC issues debt in fixed and floating rate instruments. Interest rate swaps are
used for the purpose of controlling interest expense by fixing the interest rate
of floating rate debt. When market conditions favor issuing debt in floating
rate instruments, and SBC prefers not to take the risk of floating rates, SBC
will enter interest rate swap contracts to obtain floating rate payments to
service the debt in exchange for paying a fixed rate. SBC does not seek to make
a profit from changes in interest rates. In order to maintain flexibility in
funding amounts, it is necessary to accept exposure to volatile interest rates.
SBC manages interest rate sensitivity by measuring potential increases in
interest expense that would result from a probable change in interest rates.
When the potential increase in interest expense exceeds an acceptable limit, SBC
reduces risk through fixed rate instruments and derivatives.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is included in the SBC Annual Report to
Shareowners for the fiscal year ended December 31, 1997 on page 31 through page
45, which is incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No changes in accountants or disagreements with accountants on any accounting or
financial disclosure matters occurred during the period covered by this report.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers required by Item 401 of Regulation S-K
is furnished in a separate disclosure at the end of Part I of this report since
the registrant did not furnish such information in its definitive proxy
statement prepared in accordance with Schedule 14A. Other information required
by this Item is included in the registrant's definitive proxy statement, dated
March 11, 1998, under the heading "Board of Directors" beginning on page 3 which
is incorporated herein by reference pursuant to General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 11, 1998, under the headings "Compensation of
Directors" from page 11 through page 12, and "Compensation Committee Interlocks
and Insider Participation", "Executive Compensation", "Pension Plans", and
"Contracts with Management" from page 20 through page 31, which are incorporated
herein by reference pursuant to General Instruction G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 11, 1998, under the heading "Common Stock Ownership
of Directors and Officers" on page 13, which is incorporated herein by reference
pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is included in the registrant's definitive
proxy statement, dated March 11, 1998, under the heading "Compensation of
Directors" from page 11 through page 12 and "Contracts with Management" from
page 30 through 31, which are incorporated herein by reference pursuant to
General Instruction G(3).
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Documents filed as a part of the report:
Page
---
(1) Report of Independent Auditors.......................... *
Financial Statements covered by Report of Independent Auditors:
Consolidated Statements of Income....................... *
Consolidated Balance Sheets............................. *
Consolidated Statements of Cash Flows................... *
Consolidated Statements of Shareowners' Equity.......... *
Notes to Consolidated Financial Statements.............. *
*Incorporated herein by reference to the appropriate portions of the
registrant's annual report to shareowners for the fiscal year ended
December 31, 1997. (See Part II.)
Page
---
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts.................. 26
Financial statement schedules other than those listed above have been
omitted because the required information is contained in the financial
statements and notes thereto, or because such schedules are not required or
applicable.
(3) Exhibits:
Exhibits identified in parentheses below, on file with the Securities and
Exchange Commission (SEC), are incorporated herein by reference as exhibits
hereto. Unless otherwise indicated, all exhibits so incorporated are from
File No. 1-8610.
Exhibit
Number......................................................
2-a Agreement and Plan of Merger, among Pacific Telesis Group, SBC
Communications Inc. and SBC Communications (NV) Inc., dated as of
April 1, 1996. (Exhibit 2 to Form 8-K, dated April 1, 1996.)
2-b Agreement and Plan of Merger, among Southern New England
Telecommunications Corporation, SBC Communications Inc., and SBC
(CT), dated as of January 4, 1998. (Exhibit 2 to Form 8-K, dated
January 4, 1998.)
3-a Restated Certificate of Incorporation, filed with the Secretary of
State of Delaware on April 29, 1996. (Exhibit 3 to Form 10-Q dated
March 31, 1996.)
3-b Certificate of Designation, filed with the Secretary of State of
Delaware on March 31, 1997.
3-c Bylaws dated January 30, 1998. (Exhibit to SBC Communications Inc.
(SBC) Form 8-K dated February 5, 1998.)
4-a Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no instrument
which defines the rights of holders of long-term debt of the
registrant or any of its consolidated subsidiaries is filed
herewith. Pursuant to this regulation, the registrant hereby agrees
to furnish a copy of any such instrument to the SEC upon request.
4-b Support Agreement dated November 10, 1986, between SBC and SBC
Communications Capital Corporation. (Exhibit 4-b to Registration
Statement No. 33-11669.)
4-c Form of Rights Agreement, dated as of January 27, 1989, between SBC
and American Transtech, Inc., the Rights Agent, which includes as
Exhibit B thereto the form of Rights Certificate. (Exhibit 4-a to
Form 8-A dated February 9, 1989.)
4-d Amendment of Rights Agreement, dated as of August 5, 1992, among
SBC, American Transtech, Inc., and The Bank of New York, the
successor Rights Agent, which includes the Form of Rights
Certificate as an attachment identified as Exhibit B. (Exhibit 4-a
to Form 8-K, dated August 7, 1992.)
4-e Form of Rights Certificate (included in the attachment to the
Amendment of Rights Agreement and identified as Exhibit B.) (Exhibit
4-b to Form 8-K, dated August 7, 1992.)
4-f Second Amendment of Rights Agreement, dated June 15, 1994, between
SBC and The Bank of New York, as successor Rights Agent. (Exhibit
4-e to Form 8-A/A, dated June 22, 1994.)
4-g Resolutions guaranteeing certain obligations of Pacific Telesis
Group.
10-a Short Term Incentive Plan.
10-b Senior Management Long Term Incentive Plan. (Exhibit 10-b to
Form 10-K for 1992.)
10-c Supplemental Life Insurance Plan.
10-d Supplemental Retirement Income Plan.
10-e Senior Management Deferred Compensation Plan (effective for Units of
Participation Having a Unit Start Date Prior to January 1, 1988),
revised July 30, 1993. (Exhibit 10.5 to Registration Statement No.
33-54795.)
10-f Senior Management Deferred Compensation Plan of 1988 (effective for
Units of Participation Having a Unit Start Date of January 1, 1988
or later), revised July 30, 1993. (Exhibit 10.6 to Registration
Statement No. 33-54795.)
10-g Senior Management Long Term Disability Plan. (Exhibit 10-f to
Form 10-K for 1986.)
10-h Salary and Incentive Award Deferral Plan.
10-i Financial Counseling Program.
10-j Supplemental Health Plan.
10-k Retirement Plan for Non-Employee Directors.
10-l Form of Indemnity Agreement, effective July 1, 1986, between SBC and
its directors and officers. (Appendix 1 to Definitive Proxy
Statement dated March 18, 1987.)
10-m Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Exhibit 10-p to Form
10-K for 1988.)
10-n Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Approved November 21,
1997).
10-o Stock Savings Plan.
10-p 1992 Stock Option Plan.
10-q Officer Retirement Savings Plan.
10-r 1996 Stock and Incentive Plan.
10-s Non-Employee Director Stock and Deferral Plan.
10-t Agreement with Philip J. Quigley dated March 28, 1997 (Exhibit 10pp
(vii) to Form 10-K for 1996 of Pacific Telesis Group (Reg. 1-8609))
10-u Agreement with Philip J. Quigley, dated October 24, 1998.
10-v Pacific Telesis Group Deferred Compensation Plan for Nonemployee
Directors. (Exhibit 10gg to Form 10-K for 1996 of Pacific
Telesis Group (Reg. 1-8609).)
10-v(i) Resolutions amending the Plan, effective November 21, 1997.
10-w Pacific Telesis Group Outside Directors' Deferred Stock Unit Plan.
(Exhibit 10oo to Form 10-K for 1995 of Pacific Telesis Group (Reg.
1-8609).)
10-x Pacific Telesis Group 1996 Directors' Deferred Compensation Plan.
(Exhibit 10qq to Form 10-K for 1996 of Pacific Telesis Group (Reg.
1-8609).)
10-x(i) Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to this Form 10-K.)
10-y Pacific Telesis Group Executive Supplemental Cash Balance Pension
Plan. (Exhibit 10kk to Form 10-K for 1996 of Pacific Telesis Group
(Reg. 1-8609).)
10-z Pacific Telesis Group Executive Deferral Plan. (Exhibit 10ll to Form
10-K for 1995 of Pacific Telesis Group (Reg. 1-8609).)
10-aa Pacific Telesis Group 1996 Executive Deferred Compensation Plan.
(Exhibit 10nn to Form 10-K for 1996 of Pacific Telesis Group
(Reg. 1-8609).)
10-aa(i) Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to this Form 10-K.)
10-bb Pacific Telesis Group 1994 Stock Incentive Plan. (Attachment A to
Pacific Telesis Group's 1994 Proxy Statement filed March 11, 1994,
and amended March 14 and March 25, 1994.)
10-bb(i) Resolutions amending the Plan, effective January 1, 1995.
(Attachment A to Pacific Telesis Group's 1995 Proxy
Statement, filed March 13, 1995.)
10-cc Pacific Telesis Group Nonemployee Director Stock Option Plan.
(Exhibit A to Pacific Telesis Group's 1990 Proxy Statement filed
February 26, 1990.)
10-cc(i) Resolutions amending the Plan, effective April 1, 1994.
(Exhibit 10xx(i) to Form 10-K for 1996 of Pacific Telesis
Group (Reg. 1-8609).)
12 Computation of Ratios of Earnings to Fixed Charges.
13 Portions of SBC's Annual Report to shareowners for the fiscal year
ended December 31, 1997. Only the information incorporated by
reference into this Form 10-K is included in the exhibit.
21 Subsidiaries of SBC.
23-a Consent of Ernst & Young LLP.
23-b Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Savings Plan for the year 1997 to
be filed under Form 10 K/A.
99-b Annual Report on Form 11-K for the Savings and Security Plan for the
year 1997 to be filed under Form 10-K/A.
99-c Report of Independent Auditors Coopers & Lybrand L.L.P.
SBC will furnish to shareowners upon request, and without charge, a copy of the
annual report to shareowners and the proxy statement, portions of which are
incorporated by reference in the Form 10-K. SBC will furnish any other exhibit
at cost.
(b) Reports on Form 8-K:
None.
<PAGE>
<TABLE>
SBC COMMUNICATIONS INC. Schedule II -Sheet 1
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Uncollectibles
Dollars in Millions
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------------------------------
Additions
-------------------------------
(1) (2)
Charged
Balance at Charged to Other Balance
Beginning of to Costs and Accounts Deductions at End of
Description Period Expenses Note -Note (a) -Note (b) Period
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year 1997.............................. $ 311 523 377 816 $ 395
Year 1996.............................. $ 266 395 235 585 $ 311
Year 1995.............................. $ 264 346 200 544 $ 266
<FN>
(a) Amounts previously written off which were credited directly to this account when recovered.
(b) Amounts written off as uncollectible.
</FN>
</TABLE>
<PAGE>
<TABLE>
SBC COMMUNICATIONS INC. Schedule II -Sheet 2
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Accumulated Amortization of Intangibles
Dollars in Millions
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------------
Additions
-------------------------------
(1) (2)
Balance at Charged Balance
Beginning of Charged to Other at End of
Description Period to Expense Accounts Deductions Period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year 1997.............................. $ 611 391 4 4 $ 1,002
Year 1996.............................. $ 543 121 1 54(a) $ 611
Year 1995.............................. $ 423 122 - 2 $ 543
<FN>
(a) Primarily related to the disposition of Associated Directory Services, Inc.
</FN>
</TABLE>
<PAGE>
<TABLE>
SBC COMMUNICATIONS INC. Schedule II - Sheet 3
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Reserve for Restructuring
Dollars in Millions
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------------
Additions
-------------------------------
(1) (2)
Charged
Balance at Charged to Other Balance
Beginning of to Costs and Accounts Deductions at End of
Description Period Expenses -Note -Note (a) Period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year 1997.............................. $ 110 - - 110 $ -
Year 1996.............................. $ 260 - - 150 $ 110
Year 1995.............................. $ 870 - - 610 $ 260
<FN>
(a) The 1996 and 1995 amounts reflect $(64), and $219 of costs, respectively,
for enhanced retirement benefits paid from pension fund assets which do not
require current outlays of the Company's funds. The 1996 reversal of $64
resulted from revised estimates of these retirement costs.
</FN>
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 11th day of
March, 1998.
SBC COMMUNICATIONS INC.
By /s/ Donald E. Kiernan
(Donald E. Kiernan
Senior Vice President, Treasurer and
Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Principal Executive Officer:
Edward E. Whitacre, Jr.*
Chairman and
Chief Executive Officer
Principal Financial and
Accounting Officer:
Donald E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
/s/ Donald E. Kiernan
Directors: (Donald E. Kiernan, as attorney-in-fact
and on his own behalf as Principal
Edward E. Whitacre, Jr.* Financial Officer and Principal
Clarence C. Barksdale* Accounting Officer)
James E. Barnes*
August A. Busch III*
Royce S. Caldwell* March 11, 1998
Ruben R. Cardenas*
William P. Clark*
Martin K. Eby, Jr.*
Herman E. Gallegos*
Jess T. Hay*
Bobby R. Inman*
Charles F. Knight*
Mary S. Metz*
Haskell M. Monroe, Jr.*
Toni Rembe*
S. Donley Ritchey*
Richard M. Rosenberg*
Patricia P. Upton*
* by power of attorney
<PAGE>
EXHIBIT INDEX
Exhibits identified in parentheses below, on file with the Securities and
Exchange Commission (SEC), are incorporated herein by reference as exhibits
hereto. Unless otherwise indicated, all exhibits so incorporated are from
File No. 1-8610.
Exhibit
Number......................................................
2-a Agreement and Plan of Merger, among Pacific Telesis Group, SBC
Communications Inc. and SBC Communications (NV) Inc., dated as of
April 1, 1996. (Exhibit 2 to Form 8-K, dated April 1, 1996.)
2-b Agreement and Plan of Merger, among Southern New England
Telecommunications Corporation, SBC Communications Inc., and SBC
(CT), dated as of January 4, 1998. (Exhibit 2 to Form 8-K, dated
January 4, 1998.)
3-a Restated Certificate of Incorporation, filed with the Secretary of
State of Delaware on April 29, 1996. (Exhibit 3 to Form 10-Q dated
March 31, 1996.)
3-b Certificate of Designation, filed with the Secretary of State of
Delaware on March 31, 1997.
3-c Bylaws dated January 30, 1998. (Exhibit to SBC Communications Inc.
(SBC) Form 8-K dated February 5, 1998.)
4-a Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no instrument
which defines the rights of holders of long-term debt of the
registrant or any of its consolidated subsidiaries is filed
herewith. Pursuant to this regulation, the registrant hereby agrees
to furnish a copy of any such instrument to the SEC upon request.
4-b Support Agreement dated November 10, 1986, between SBC and SBC
Communications Capital Corporation. (Exhibit 4-b to Registration
Statement No. 33-11669.)
4-c Form of Rights Agreement, dated as of January 27, 1989, between SBC
and American Transtech, Inc., the Rights Agent, which includes as
Exhibit B thereto the form of Rights Certificate. (Exhibit 4-a to
Form 8-A dated February 9, 1989.)
4-d Amendment of Rights Agreement, dated as of August 5, 1992, among
SBC, American Transtech, Inc., and The Bank of New York, the
successor Rights Agent, which includes the Form of Rights
Certificate as an attachment identified as Exhibit B. (Exhibit 4-a
to Form 8-K, dated August 7, 1992.)
4-e Form of Rights Certificate (included in the attachment to the
Amendment of Rights Agreement and identified as Exhibit B.) (Exhibit
4-b to Form 8-K, dated August 7, 1992.)
4-f Second Amendment of Rights Agreement, dated June 15, 1994, between
SBC and The Bank of New York, as successor Rights Agent. (Exhibit
4-e to Form 8-A/A, dated June 22, 1994.)
4-g Resolutions guaranteeing certain obligations of Pacific Telesis
Group.
10-a Short Term Incentive Plan.
10-b Senior Management Long Term Incentive Plan. (Exhibit 10-b to Form
10-K for 1992.)
10-c Supplemental Life Insurance Plan.
10-d Supplemental Retirement Income Plan.
10-e Senior Management Deferred Compensation Plan (effective for Units of
Participation Having a Unit Start Date Prior to January 1, 1988),
revised July 30, 1993. (Exhibit 10.5 to Registration Statement No.
33-54795.)
10-f Senior Management Deferred Compensation Plan of 1988 (effective for
Units of Participation Having a Unit Start Date of January 1, 1988
or later), revised July 30, 1993. (Exhibit 10.6 to Registration
Statement No. 33-54795.)
10-g Senior Management Long Term Disability Plan. (Exhibit 10-f to Form
10-K for 1986.)
10-h Salary and Incentive Award Deferral Plan.
10-i Financial Counseling Program.
10-j Supplemental Health Plan.
10-k Retirement Plan for Non-Employee Directors.
10-l Form of Indemnity Agreement, effective July 1, 1986, between SBC and
its directors and officers. (Appendix 1 to Definitive Proxy
Statement dated March 18, 1987.)
10-m Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Exhibit 10-p to Form
10-K for 1988.)
10-n Forms of Change of Control Severance Agreements for officers of SBC
and certain officers of SBC's subsidiaries (Approved November 21,
1997).
10-o Stock Savings Plan.
10-p 1992 Stock Option Plan.
10-q Officer Retirement Savings Plan.
10-r 1996 Stock and Incentive Plan.
10-s Non-Employee Director Stock and Deferral Plan.
10-t Agreement with Philip J. Quigley, dated March 28, 1997 (Exhibit 10pp
(vii) to Form 10-K for 1996 of Pacific Telesis Group (Reg. 1-8609))
10-u Agreement with Philip J. Quigley, dated October 24, 1998.
10-v Pacific Telesis Group Deferred Compensation Plan for Nonemployee
Directors. (Exhibit 10gg to Form 10-K for 1996 of Pacific Telesis
Group (Reg. 1-8609).)
10-v(i) Resolutions amending the Plan, effective November 21, 1997.
10-w Pacific Telesis Group Outside Directors' Deferred Stock Unit Plan.
(Exhibit 10oo to Form 10-K for 1995 of Pacific Telesis Group (Reg.
1-8609).)
10-x Pacific Telesis Group 1996 Directors' Deferred Compensation Plan.
(Exhibit 10qq to Form 10-K for 1996 of Pacific Telesis Group (Reg.
1-8609).)
10-x(i) Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to this Form 10-K.)
10-y Pacific Telesis Group Executive Supplemental Cash Balance Pension
Plan. (Exhibit 10kk to Form 10-K for 1996 of Pacific Telesis Group
(Reg. 1-8609).)
10-z Pacific Telesis Group Executive Deferral Plan. (Exhibit 10ll to Form
10-K for 1995 of Pacific Telesis Group (Reg. 1-8609).)
10-aa Pacific Telesis Group 1996 Executive Deferred Compensation Plan.
(Exhibit 10nn to Form 10-K for 1996 of Pacific Telesis Group (Reg.
1-8609).)
10-aa(i) Resolutions amending the Plan, effective November 21, 1997.
(Exhibit 10-v(i) to this Form 10-K.)
10-bb Pacific Telesis Group 1994 Stock Incentive Plan. (Attachment A to
Pacific Telesis Group's 1994 Proxy Statement filed March 11, 1994,
and amended March 14 and March 25, 1994.)
10-bb(i) Resolutions amending the Plan, effective January 1, 1995.
(Attachment A to Pacific Telesis Group's 1995 Proxy
Statement, filed March 13, 1995.)
10-cc Pacific Telesis Group Nonemployee Director Stock Option Plan.
(Exhibit A to Pacific Telesis Group's 1990 Proxy Statement filed
February 26, 1990.)
10-cc(i) Resolutions amending the Plan, effective April 1, 1994.
(Exhibit 10xx(i) to Form 10-K for 1996 of Pacific Telesis
Group (Reg. 1-8609).)
12 Computation of Ratios of Earnings to Fixed Charges.
13 Portions of SBC's Annual Report to shareowners for the fiscal year
ended December 31, 1997. Only the information incorporated by
reference into this Form 10-K is included in the exhibit.
21 Subsidiaries of SBC.
23-a Consent of Ernst & Young LLP.
23-b Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney.
27 Financial Data Schedule.
99-a Annual Report on Form 11-K for the Savings Plan for the year 1997 to
be filed under Form 10 K/A.
99-b Annual Report on Form 11-K for the Savings and Security Plan for the
year 1997 to be filed under Form 10-K/A.
99-c Report of Independent Auditors Coopers & Lybrand L.L.P.
EXHIBIT 3b
CERTIFICATE OF INCREASE
OF
SHARES DESIGNATED
AS
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
SBC COMMUNICATIONS INC.
SBC Communications Inc., a corporation duly organized and existing
under the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
That the Restated Certificate of Incorporation of said corporation
was filed in the office of the Secretary of State of Delaware on April 28, 1995
and a Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock was filed in said office of the Secretary of State
on February 14, 1989.
That the Restated Certificate of Incorporation of said corporation
authorizes 10,000,000 shares of Preferred Stock, par value $1.00 per share, for
issuance, none of which have been issued.
That the Board of Directors of said corporation, on January 27,
1989, duly adopted a resolution designating 4,000,000 shares of Preferred Stock
as Series A Junior Participating Preferred Stock.
That the Board of Directors of said corporation at a meeting held
on March 28, 1997, duly adopted a resolution authorizing and directing an
increase in the number of shares designated as Series A Junior Participating
Preferred Stock of the Corporation, from 4,000,000 shares to 8,000,000 shares,
in accordance with the provisions of section 151 of The General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, the said corporation has caused this
certificate to be executed by its Senior Vice President, Treasurer and Chief
Financial Officer this 28th day of March 1997.
SBC COMMUNICATIONS INC.
/s/ Donald E. Kiernan
Donald Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
EXHIBIT 4g
BOARD OF DIRECTORS
APPROVED January 30, 1998
Whereas, Pacific Telesis Group ("PTG") is the owner of all the
common securities (the "Common Securities") of Pacific Telesis Financing I
("Financing I") and of Pacific Telesis Financing II ("Financing II" and,
together with Financing I, the "trusts"); and
Whereas, Financing I is the issuer of 7.56% Trust Originated
Preferred Securities (the "Financing I Preferred Securities") and Financing II
is the issuer of 8 1/2% Trust Originated Preferred Securities issued by
Financing II (the "Financing II Preferred Securities" and, together with the
Financing I Preferred Securities, the "Preferred Securities" and, the Preferred
Securities together with the Common Securities, the "Trust Securities"); and
Whereas, in connection with the issuance of the Preferred Securities
by the Trusts, PTG has (i) pursuant to a Preferred Securities Guarantee
Agreement, dated as of January 9, 1996, between PTG and The First National Bank
of Chicago, as Trustee (the "PTG Financing I Guarantee"), agreed to guarantee,
on a subordinated basis, certain payments to be made with respect to the
Financing I Preferred Securities, to the extent that Financing I has funds
sufficient to make such payments and (ii) pursuant to the Preferred Securities
Guarantee Agreement, dated as of June 18, 1996, as amended by a First Amendment
thereto, dated as of June 18, 1996, each between PTG and the First National Bank
of Chicago, as trustee (the "PTG Financing II Guarantee" and, together with the
PTG Financing I Guarantee, the "PTG Guarantees"), agreed to guarantee, on a
subordinated basis, certain payments to be made with respect to the Financing II
Preferred Securities, to the extent that Financing II has funds sufficient to
make such payments; and
Whereas, in connection with the issuance of the Preferred Securities
by the Trusts, PTG has issued approximately $515.5 million in principal amount
of its 7.56% Subordinated Deferrable Interest Debentures due January 31, 2026
(the "7.56% Debentures") to Financing I and approximately $514.5 million in
principal amount of its 8 1/2% Subordinated Deferrable Interest Debentures due
June 30, 2026 (the "8 1/2% Debentures" and, together with the 7.56% Debentures,
the "Junior Subordinated Debentures") to Financing II; and
Whereas, in connection with the issuance of the Preferred Securities
by the Trusts, PTG has agreed, pursuant to the trust agreements of the Trusts
and the Indenture, dated as of January 9, 1996, between PTG and the First
National Bank of Chicago, as trustee (as supplemented, the "Indenture"), to pay
(i) all costs and expenses relating to the offering of the Trust Securities and
the Junior Subordinated Debentures, (ii) all debts and other obligations (other
than with respect to the Trust Securities) and all costs and expenses of the
Trusts (including costs and expenses relating to the organization, maintenance
and dissolution of the Trusts, the fees and expenses of the Trustees of the
Trusts and the costs and expenses relating to the operation of the Trusts and
the enforcement by the Property Trustee of the Trusts of the rights of the
holders of the Preferred Securities) and (iii) all taxes (other than United
States withholding taxes) to which the Trusts may become subject and all costs
and expenses with respect thereto (collectively, the "PTG Expense
Undertakings"); and
Whereas, on April 1, 1997, SBC Communications Inc. (the
"Corporation") and PTG completed the merger of a subsidiary of the Corporation
into PTG, whereupon PTG became a wholly-owned subsidiary of the Corporation; and
Whereas, the Corporation is a reporting company current in all of
its reporting obligations under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and wishes to have PTG cease its reporting under the
Exchange Act without giving rise to any reporting obligations for the Trusts;
Therefore, be it:
RESOLVED, the Corporation hereby irrevocably, fully and
unconditionally guarantees the Preferred Securities of each Trust (these
"Preferred Securities Guarantees") on the following terms: (i) the Corporation
is jointly and severally liable with PTG for the payment in full of the payments
due under the PTG Guarantees (without duplication of amounts theretofore paid by
the related Trustee) as and when due, regardless of any defense, right of
set-off or counterclaim that the related Trust may have or assert, provided,
however, that these Preferred Securities Guarantees will not apply to any
distributions if and to the extent that the related Trust does not have funds
sufficient to make such payments and PTG would not be obligated therefor under
the related PTG Guarantee; (ii) the holders of the Preferred Securities are
entitled to enforce their rights under the related Preferred Securities
Guarantee directly against the Corporation, without first instituting a
proceeding against the applicable Trust, PTG or any other person or entity; and
(iii) these Preferred Securities Guarantees are unsecured and rank (a) junior in
right of payment to all other liabilities of the Corporation (including the
Junior Subordinated Debenture Guarantee discussed below) except for those
obligations that are made pari passu with or subordinate to these Preferred
Securities Guarantees by their terms, (b) pari passu with the most senior
preferred or preference stock now or hereafter issued by the Corporation and
with any guarantee now or hereafter entered into by the Corporation in respect
of any preferred or preference stock of any affiliate of the Corporation and (c)
senior to the common stock of the Corporation; and
RESOLVED, that the Corporation hereby irrevocably, fully and
unconditionally guarantees PTG's payment obligations under its Junior
Subordinated Debentures (these "Debentures Guarantees") on the following terms:
(i) these Debentures Guarantees are unsecured and subordinated with respect to
the Senior Indebtedness of the Corporation in the same manner and to the same
extent as the Junior Subordinated Debentures are subordinated with respect to
the Senior Indebtedness of PTG (for this purpose, "Senior Indebtedness" of the
Corporation has the same meaning as "Senior Indebtedness" of PTG under the
Indenture except that (a) the Corporation is substituted for PTG, (b) the
Debentures Guarantees are substituted for the Subordinated Debentures and (c)
the descriptive inclusionary clauses referring to PTG subsidiaries are omitted
as inapplicable); (ii) the Corporation is jointly and severally liable with PTG
to make payments of interest, principal and premium, if any, on any Junior
Subordinated Debentures on the date such interest or principal is due and
payable; (iii) the holders of the Junior Subordinated Debentures are entitled to
enforce the related Debentures Guarantee directly against the Corporation,
without first proceeding against PTG or any other person or entity; (iv) if any
Junior Subordinated Debentures are held by a Trust, (a) the Corporation may
satisfy its payment obligation under the related Debentures Guarantee by
directly paying to each holder of the Preferred Securities of such Trust the due
and unpaid principal of or interest on such Junior Subordinated Debentures
having a principal amount equal to the aggregate liquidation amount of the
related Preferred Securities held by such holder and (b) each holder of the
Preferred Securities of a Trust is entitled to enforce the related Debenture
Guarantee directly against the Corporation, without first proceeding against PTG
or any other person or entity; and
RESOLVED, that the Corporation hereby irrevocably, fully and
unconditionally assumes joint and several liability with PTG for all payment
obligations under the PTG Expense Undertakings (these "Expense Undertakings") on
the following terms: (i) these Expense Undertakings are for the benefit of and
enforceable by the beneficiaries of the PTG Expense Undertakings; and (ii) the
beneficiaries of the PTG Expense Undertakings are entitled to enforce such
undertakings directly against the Corporation without first proceeding against
PTG, the related Trust or any other person or entity; and
RESOLVED, that the Preferred Securities Guarantees, Debenture
Guarantees and Expense Undertakings are effective on the date hereof and are
irrevocable.
EXHIBIT 10a
LOGO
SBC Communications Inc.
SHORT TERM INCENTIVE PLAN
Plan Effective: January 1, 1984
Revisions Effective: November 21, 1997
<PAGE>
SHORT TERM INCENTIVE PLAN
TABLE OF CONTENTS
Section Subject Page
1. Purpose...............................................1
2. Definitions...........................................1-2
3. Eligibility...........................................2
4. Awards................................................2-4
5. Adjustments ..........................................4
6. Other Conditions .....................................5
7. Designation of Beneficiaries..........................5
8. Plan Administration...................................5&6
9. Modification or Termination of Plan...................6
<PAGE>
SHORT TERM INCENTIVE PLAN
1. Purpose. The purpose of the Short Term Incentive Plan (the "Plan") is to
provide Eligible Employees with incentive compensation based upon the
achievement of financial, service, and operating performance levels and
management effectiveness.
2. Definitions. For purposes of this Plan, the following words and phrases
shall have the meanings indicated, unless the context clearly indicates
otherwise:
Award Year. "Award Year" shall mean the calendar year for which
performance is used to determine one's award under the Plan.
Chairman. "Chairman" shall mean the Chairman of the Board of SBC
Communications Inc.
Committee. "Committee" shall mean the Human Resources Committee
of the Board of SBC Communications Inc.
Eligible Employee. "Eligible Employee" shall mean an Officer or
a non-Officer employee of any SBC company who is designated by
the Chairman as eligible to participate in the Plan.
Officer. "Officer" shall mean an individual who is designated by
the Chairman as eligible to participate in the Plan who is an
elected officer of SBC or of any SBC subsidiary (direct or
indirect).
Retirement. "Retirement" shall mean the termination of an Eligible
Employee's employment with SBC or any of its subsidiaries, for
reasons other than death, on or after the earlier of the following
dates: (1) the date the Eligible Employee is Retirement Eligible as
such term is defined in the SBC Supplemental Retirement Income Plan
("SRIP"); or (2) the date the Eligible Employee has attained one of
the following combinations of age and service at termination of
employment on or after April 1, 1997, except as otherwise indicated
below:
Net Credited Service Age
10 years or more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
With respect to an Eligible Employee who is granted an EMP Service
Pension under and pursuant to the provisions of the SBC Pension
Benefit Plan - Nonbargained Program ("SBCPBP") upon termination of
Employment, the term "Retirement" shall include such Eligible
Employee's termination of employment.
SBC. "SBC" shall mean SBC Communications Inc.
3. Eligibility. Each Eligible Employee who during an Award Year was
-----------
in active service is eligible for an award under the Plan (whether or
not so employed or living at the date an award is made); provided that
the employee had at least three months of active service (excluding any
time the employee was absent on account of disability and receiving any
sickness or accident disability benefits under any SBC disability
benefit plan (("Disability Benefits") during the Award Year).
Employees are not rendered ineligible by reason of being a member of
the Board.
4. Awards. The Committee with respect to Officers, or the Chairman with
respect to non-Officer Eligible Employees, shall approve a Target Award
for each employee eligible for an award under the Plan for each Award Year
that the Committee or the Chairman, as applicable, intends to make awards.
The Target Award applicable to an employee otherwise eligible for an award
under the Plan for an Award Year shall be prorated over the Award Year or
the employee shall be ineligible for an award, as follows:
(1) become eligible or ineligible prorate according to time of active
for an award under Plan or service in each eligible position
change from one eligible to the nearest half month
position to another after the
beginning of the Award Year
(2) inter-company transfers prorate for each respective
entities' performance according to
time of active service at each
entity to the nearest half month
(3) receipt of Disability Benefits prorate to the day based on service
for more than three months in while not receiving Disability
an Award Year Benefits
(4) receipt of Disability no reduction is applicable Target
Benefits for three months or Award
less in an Award Year
(5) Retirement or resignation prorate to date of Retirement or
resignation
(6) leave of absence prorate to date leave commences and
from date leave ceases unless
otherwise provided by the Committee
or the Chairman, as applicable
(7) death during an Award Year prorate to date of death
(8) dismissal for cause during or no award
after an Award Year
A percentage of the Target Award for each Award Year to be distributed to
the award recipient will be determined by the Committee, or Chairman, for
Officers and non-Officer Eligible Employees, respectively, based upon
achievement of performance levels during such Award Year of criteria
established by the Committee, or the Chairman, respectively.
The criteria established by the Committee for Officers, or the Chairman
with respect to non-Officer Eligible Employees, upon which the percentages
of the Target Awards referred to above are determined shall give due
regard, as the Committee, or the Chairman, as applicable, deems
appropriate, to one or more of the following for the Award Year:
(a) Financial performance of SBC, individual operating entities thereof
and/or SBC and its consolidated subsidiaries.
(b) Service performance of SBC and of individual operating entities; or
other appropriate operating performance criteria for entities where
service performance is not relevant.
(c) Other criteria in lieu of or in addition to the above as determined
by the Committee or the Chairman, as applicable.
The Committee then with respect to Officers, or the Chairman with respect
to non-Officer Eligible Employees, shall determine the payout of Awards in
such amounts and to such of the Eligible Employees as each may determine
in its sole discretion. Awards shall be paid in cash in the calendar year
the awards are determined, except to the extent that an Eligible Employee
has made an election to defer the receipt of such award pursuant to the
SBC Salary and Incentive Award Deferral Plan or other SBC deferred
compensation plan.
The award to be distributed to an individual may be more or less in the
Committee's or the Chairman's discretion, as applicable, including no
award, than the percentage of the Target Award determined for such
individual; for example, the Committee or the Chairman, as applicable, may
approve an award greater than the Target Award, adjusted for performance,
based on individual performance.
5. Adjustments.
(a) In order to assure the incentive features of the Plan and to
avoid distortion in the operation of the Plan, the Committee or
the Chairman, as applicable, may make adjustments in the criteria
established for any Award Year, whether before or after the end
of the Award Year, to the extent the Committee or the Chairman,
as applicable, deems appropriate, to compensate for or reflect
any extraordinary changes which may have occurred during the
Award Year which significantly alter the basis upon which
performance levels were determined. Such changes may include,
without limitation, changes in accounting practices, tax laws, or
other laws or regulations, or economic changes not in the
ordinary course of business cycles.
(b) In the event of any change in outstanding shares of SBC by reason of
any stock dividend or split, recapitalization, merger,
consolidation, combination or exchange of shares or other similar
corporate change, the Committee or the Chairman, as applicable,
shall make such adjustments, if any, that the Committee or the
Chairman, as applicable, deems appropriate in the performance levels
established for any Award Year.
(c) The Senior Vice President-Human Resources shall approve a new Target
Award for any Officer or non-Officer Eligible Employee whose
position is modified by changes in job responsibilities,
reorganization, etc.; provided, however, that such authority may not
be exercised for positions with a total compensation market rate
exceeding $1.5 million (in such a case the new Target Award shall be
approved by the Committee).
6. Other Conditions.
(a) No person shall have any claim to be granted an award under the Plan
and there is no obligation for uniformity of treatment of Eligible
Employees under the Plan. Awards under the Plan may not be assigned
or alienated.
(b) Neither the Plan nor any action taken hereunder shall be construed
as giving to any employee the right to be retained in the employ of
SBC or any subsidiary thereof.
(c) SBC or subsidiary thereof, as applicable, shall have the right to
deduct from any award to be paid under the Plan any federal, state
or local taxes required by law to be withheld with respect to such
payment.
(d) Unless otherwise provided by the Committee, awards under the Plan
shall be excluded in determining benefits under any pension,
retirement, savings, disability, death, or other benefit plans of
SBC except where required by law.
7. Designation of Beneficiaries. An Eligible Employee may designate
----------------------------
pursuant to SBC's Rules for Employee Beneficiary Designations as may
hereafter be amended from time-to-time ("Rules"), which Rules shall
apply hereunder and are incorporated herein by this reference, a
beneficiary or beneficiaries to receive in case of the employee's death
all or part of the awards which may be made to the employee under the
Plan. A designation of beneficiary may be replaced by a new
designation or may be revoked by the employee at any time. A
designation or revocation shall be on a form to be provided for the
purpose and shall become effective only when filed with SBC during the
employee's lifetime with written acknowledgement of receipt from SBC.
In case of the employee's death, an award made under the Plan with
respect to which a designation of beneficiary has been made (to the
extent it is valid and enforceable under applicable law) shall be paid
to the designated beneficiary or beneficiaries. Any award made to an
employee who is deceased and not subject to such a designation shall be
distributed in accordance with the Rules.
8. Plan Administration.
(a) The Committee or the Chairman, as applicable, shall have full
power to administer and interpret the Plan and to establish rules
for its administration. Awards under the Plan shall be
conclusively determined by the Committee or the Chairman, as
applicable. Any determinations or actions required or permitted
to be made by the Committee or the Chairman, as applicable, may
be delegated by the Committee or the Chairman in its sole
discretion. The Committee or the Chairman, as applicable, or any
delegate thereof, in making any determinations under or referred
to in the Plan shall be entitled to rely on opinions, reports or
statements of officers or employees of SBC and/or of any
subsidiary thereof and of counsel, public accountants and other
professional or expert persons.
(b) The Plan shall be governed by the laws of the State of Texas and
applicable Federal law.
9. Modification or Termination of Plan. This Plan may be modified or
terminated at any time in accordance with the provisions of SBC's Schedule
of Authorizations. A modification may affect present and future Eligible
Employees.
<PAGE>
i
SHORT TERM INCENTIVE PLAN
ADMINISTRATIVE GUIDELINES
TABLE OF CONTENTS
Section Subject Page
1. Purpose............................................... 1
2 Award Process......................................... 1
3. Performance Criteria..................................1&2
4. Funding...............................................1&2
5. Distribution of Awards................................ 2
6. Changes/Exceptions.................................... 3
<PAGE>
4
SHORT TERM INCENTIVE PLAN
ADMINISTRATIVE GUIDELINES
1. Purpose. The purpose of these Guidelines is to outline the procedures to
be followed in administering SBC's Short Term Incentive Plan (the "Plan").
2. Award Process. The Committee shall approve a Target Award for each
eligible Officer. The Chairman shall approve a Target Award for each
non-Officer Eligible Employee. These Target Awards are based on
market-based rates established for each Eligible Employee and shall
generally be established in January of the Award Year.
Annual financial and/or other performance objectives for Officers for an
Award Year shall be approved by the Committee each year, generally in
January of the Award Year. Objectives for non-Officer Eligible Employees
shall be approved by the Chairman. Annual financial and/or other
performance results (upon which the payment of Awards for Officers shall
be based), maximum funding levels, and payout recommendations requiring
Committee approval, will be submitted to and approved by the Committee
after the Award Year is completed. Results for non-Officer Eligible
Employees shall be approved by the Chairman.
An individual's Target Award will be prorated over the Award Year, if
applicable, according to Section 3(b) of the Plan.
Target Awards will be adjusted for distribution based upon achievement
during the Award Year, of the financial and/or other performance criteria
established by the Committee or the Chairman, as applicable. Discretionary
awards may also be granted as described in Section 5, to be paid out of
funds from the Discretionary Pools.
3. Performance Criteria. The performance criteria established by the
Committee or the Chairman, as applicable, may be one or more of the
following:
Financial Performance Criteria
Achievement of Value Added objectives or other financial objectives
(e.g., gross contributions, revenues, etc.) will be used as financial
performance criteria for all entities.
Value Added shall be a measure of earnings above a return required by
investors (i.e., generally, net operating contribution less a capital
charge).
Value Added performance is determined after adjustment in accordance
with the following:
In order to assure the incentive features of the Plan and to avoid
distortion in the operation of the Plan, the Committee or the
Chairman, as applicable, shall make adjustments in the criteria
established for any Award Year, whether before or after the end of
the Award Year to compensate for or reflect any extraordinary
changes which may have occurred during the Award Year which alter
the basis upon which performance levels were determined. Such
changes include the following: accounting changes, extraordinary
items, income from discontinued operations, and the impact of
material events that have been publicly disclosed.
Other Performance Criteria
Other performance criteria may include, but are not limited to, Value
Drivers, i.e., quantifiable operational and other indicators, such as
revenue growth, customer or subscriber growth, operating margin, etc.,
that are tied to the strategy of the operating entity and are key
barometers of value creation.
4. Funding. Each year, a maximum funding level of 1.0 percent of reported SBC
net income (before any extraordinary loss and/or cumulative effect of
changes in accounting principles) minus amounts paid as Key Executive
Officer Short Term Award(s) pursuant to the 1996 Stock and Incentive Plan
shall be available to payment or awards under the Plan with respect to the
preceding Award Year.
5. Distribution of Awards. Awards for the preceding Award Year will generally
be distributed after completion of the Award Year in accordance with the
following paragraphs. Distribution of all awards is subject to approval by
the Committee or the Chairman, as applicable, generally obtained in
January following the completion of an Award Year.
Formula-Driven Awards -
The Committee, or the Chairman, as applicable, shall establish financial
and/or other performance objectives for SBC and such other entities as
deemed appropriate by the Committee or the Chairman, as applicable.
Up to 100% of the Target Award for the preceding Award Year is paid to
Officers and to non-Officer Eligible Employees in each entity based on the
achievement of applicable financial and/or other performance results of
their entity. An example of a Payout Table for formula-driven awards is
included as Attachment l. For national or international subsidiaries with
small Value Added commitments, the Committee for Officers and the Chairman
for non-Officer Eligible Employees may establish Value Driver
objectives/percentages to be substituted for Value Added commitments.
Discretionary Pools -
After determination of formula-driven awards, the Committee for Officers
and the Chairman for non-Officer Eligible Employees may establish
Discretionary Pools to reward individuals and/or entities for exceptional
performance. Maximum funding available for Discretionary Pools is the
maximum funding level described in Section 4 less the formula-driven
amounts distributed.
The Committee or the Chairman, as applicable, will determine funding for
each pool and provide guidelines for distribution of awards. The following
are examples of factors that may be considered:
Value Added results above objective
Value Driver results
Outstanding customer service results
Advancement of workforce diversity
Outstanding individual contribution
The Chairman will recommend to the Committee the discretionary awards for
officers reporting directly to the Chairman.
6. Changes/Exceptions. Changes in these Guidelines and exceptions to their
provisions may be authorized by the Committee.
<PAGE>
Exhibit 1
=============------------------==============---------------==============
Value Added Target Award
Target Payout
$* %
------------------ ---------------
$XXX or above 100%
$XXX 98%
$XXX 96%
$XXX 93%
$XXX 90%
$XXX 87%
$XXX 84%
$XXX 81%
$XXX 78%
$XXX 75%
$XXX 70%
$XXX 65%
$XXX 60%
$XXX 55%
$XXX 50%
Below $XXX 0%
*(expressed in
millions $)
==========================================================================
EXHIBIT 10c
LOGO
SBC Communications Inc.
SUPPLEMENTAL LIFE INSURANCE PLAN
Effective: January 1, 1986
Revisions Effective: November 21, 1997
<PAGE>
SUPPLEMENTAL LIFE INSURANCE PLAN
TABLE OF CONTENTS
Section Subject Page
1. Purpose............................................... 1
2. Definitions...........................................1&2
3. Eligibility........................................... 2
4. Pre-Retirement Benefits and Post-
Retirement Benefits.................................... 2
- Basic Death Benefit.................................2&3
- Optional Supplementary Benefit......................3-4
- Alternate Death Benefit............................. 5
- Salary Continuation Death Benefit................... 6
- Survivor Annuity Equivalent.........................6&7
5. Incidents of Ownership................................ 7
6. Premiums..............................................7&8
7. Termination of Coverage............................... 8
8. Non-Competition.......................................8&9
9. Restriction on Assignment............................. 9
10. Unsecured General Creditor............................9&10
11. Employment not Guaranteed............................. 10
12. Protective Provisions................................. 10
13. Change in Status...................................... 10
14. Named Fiduciary....................................... 10
15. Applicable Law........................................ 11
16. Administration of the Plan............................ 11
17. Relation to Prior Plans............................... 11
18. Amendments and Termination............................ 11
<PAGE>
SUPPLEMENTAL LIFE INSURANCE PLAN
1. Purpose. The purpose of the Supplemental Life Insurance Plan ("Plan") is to
allow for provision of additional survivor benefits for Eligible Employees.
2. Definitions. For purposes of this Plan, the following words and phrases shall
have the meanings indicated, unless the context clearly indicates otherwise:
Annual Base Salary or Annual Salary or Salary.
"Annual Base Salary" or "Annual Salary" or "Salary" shall mean an Eligible
Employee's annual base salary rate determined by SBC, excluding (1) all
differentials regarded as temporary or extra payments and (2) all payments
and incentive awards and distributions made either as a long term award or
as a short term award; and such Salary shall be as before reduction due to
any contribution pursuant to any deferred compensation plan or agreement
provided by SBC, including but not limited to compensation deferred in
accordance with Section 401(k) of the Internal Revenue Code. Annual Salary
or Salary shall mean an annualized amount determined from an Eligible
Employee's Annual Base Salary rate.
Beneficiary. "Beneficiary" shall mean any beneficiary or
beneficiaries designated by the Eligible Employee pursuant to the SBC
Rules for Employee Beneficiary Designations as may hereafter be
amended from time-to-time ("Rules").
Chairman. "Chairman" shall mean the Chairman of the Board of SBC
Communications Inc.
Committee. "Committee" shall mean the Human Resources Committee of the
Board of SBC Communications Inc.
Eligible Employee. "Eligible Employee" shall mean an Officer or a
non-Officer employee of any SBC company who is designated by the
Chairman as eligible to participate in the Plan.
Insurance Contract. "Insurance Contract" shall mean a contract(s) of
life insurance insuring the life of the Eligible Employee entered
into by SBC.
Officer. "Officer" shall mean an individual who is designated by the
Chairman as eligible to participate in the Plan who is an elected
officer of SBC or of any SBC subsidiary (direct or indirect).
Retirement. "Retirement" shall mean the termination of an Eligible
Employee's employment with SBC or any of its subsidiaries, for reasons
other than death, on or after the earlier of the following dates: (1) the
date the Eligible Employee is Retirement Eligible as term is defined in
the SBC Supplemental Retirement Income Plan ("SRIP"); or (2) the date the
Eligible Employee has attained one of the following combinations of age
and service at termination of employment on or after April 1, 1997, except
as otherwise indicated below:
Net Credited Service Age
10 years or more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
With respect to an Eligible Employee who is granted an EMP Service Pension
under and pursuant to the provisions of the SBC Pension Benefit Plan -
Nonbargained Program ("SBCPBP") upon termination of Employment, the term
"Retirement" shall include such Eligible Employee's termination of
employment.
SBC. "SBC" shall mean SBC Communications Inc.
3. Eligibility. Each Eligible Employee shall be eligible to
participate in the Plan
4. Pre-Retirement Benefits and Post-Retirement Benefits.
Basic Death Benefit
While this plan is in effect, the Beneficiary who is designated by the
Eligible Employee shall be entitled to receive as a Basic Death Benefit
from the proceeds of the Insurance Contract an amount equal to the result
of multiplying the Eligible Employee's Annual Salary rounded to the next
higher $1,000 by the following amounts:
Chief Executive Officer 3
Direct Reporting Officer as such term
is defined in SBC's Schedule of
Authorizations 2
Other Eligible Employees 1
This amount shall be reduced (but not below zero) by any amount payable
under any group term life insurance covering the Eligible Employee which
is maintained by SBC, which amount of group term life insurance will be
limited to a maximum of $50,000.
The amount of Basic Death Benefit payable hereunder will automatically
increase if pay increases.
At Retirement, the pre-retirement benefit converts to a post-retirement
benefit. This benefit is equal to one times Salary rounded to the next
higher $1,000 (at the time of retirement) and shall be reduced (but not
below zero) by any amount payable under any group term life insurance
covering the Eligible Employee which is maintained by SBC, which amount of
group term life insurance will be limited to a maximum of $50,000;
provided, however, for an executive who first becomes a Plan participant
on or after January 1, 1998, this post-retirement death benefit shall be
reduced by 10% of its original post-retirement amount each year for five
years beginning at the later of the date the Eligible Employee attains age
65 or Retirement.
Optional Supplementary Benefit
Subject to the limitations in the remaining paragraphs in this section
describing optional supplementary benefits, each Eligible Employee may
also purchase optional supplementary pre-retirement life insurance
coverage from SBC in an amount equal to one times the Eligible Employee's
Annual Salary rounded to the next higher $1,000, and an additional amount
of such insurance in an amount equal to another one times such amount (for
a total of two times the Annual Salary rounded to the next higher $1,000),
which insurance shall be payable from the proceeds of the Insurance
Contract. Each such amount of insurance ("one times salary") continued
until such employee reaches age 65, by continuing to contribute for it,
shall entitle the beneficiary under the Insurance Contract to receive an
amount from the proceeds of such Insurance Contract equal to one times the
Eligible Employee's final Annual Salary rounded to the next higher $1,000,
when such Eligible Employee dies after Retirement.
To elect this optional supplementary coverage, the Eligible Employee must
complete an enrollment form on which he or she specifies the amount of
coverage he or she wishes to purchase and authorizes his or her employing
company to deduct his or her contributions for coverage from his or her
salary.
An Eligible Employee may not elect this coverage while receiving
disability benefits under any Company disability benefit plan.
An Eligible Employee must make his or her election to purchase optional
supplementary coverage within three calendar months of being declared
eligible to participate in the Plan; except any Eligible Employee who was
declared an Eligible Employee before October 1, 1997, shall have until
December 31, 1997 to enroll for such optional supplementary coverage or to
increase such coverage.
The optional supplementary life insurance is effective upon SBC's binding
of life insurance coverage for the Eligible Employee pursuant to an
Insurance Contract
Effective January 1, 1998, once an Eligible Employee enrolls for optional
supplementary coverage, he or she can later decrease or terminate such
coverage but never increase or reinstate such coverage.
Regardless of the amount of coverage elected, the amount in force will
automatically increase if Salary increases. The cost for this coverage
will increase accordingly.
This optional supplementary life insurance is paid for on a contributory
basis by those Eligible Employees who enroll in the coverage. The cost of
coverage, and therefore, how much an Eligible Employee contributes,
depends on age and the amount of coverage and shall be as determined by
SBC. There will be no periodic waiver of premium payments.
In the event of death, the Eligible Employee's optional supplementary life
insurance benefit will be paid to the Eligible Employee's Beneficiary or
Beneficiaries in a lump sum, unless the Salary Continuation Death Benefit
form of payment was elected on the Eligible Employee's enrollment form.
The option to elect other than a lump sum payment is limited to an
Eligible Employee who became an Eligible Employee on or before January 1,
1998. If the Eligible Employee has no surviving beneficiaries, the benefit
will be paid in a lump sum in accordance with the Rules.
The optional supplementary life insurance coverage hereunder will
automatically continue while an Eligible Employee is receiving disability
benefits under any SBC disability benefit plan, provided the Eligible
Employee continues his or her contributions.
If an Eligible Employee terminates employment with SBC or any of its
subsidiaries for any reason other than Retirement, this coverage will stop
at the end of the month of termination; provided, however, Eligible
Employees who are 65 at the time of their termination will continue to
have non-contributory unreduced coverage after age 65.
Alternate Death Benefit
Alternate death benefit coverage shall only be available to an Eligible
Employee who became an Eligible Employee before January 1, 1998. Such
Eligible Employees shall be entitled to elect to receive alternate death
benefit life insurance coverage; provided such election is made before
January 1, 1998.
Under such coverage, an Eligible Employee's Beneficiary or Beneficiaries
will be entitled to receive from the proceeds of the Insurance Contract a
payment equal to the Eligible Employee's final Annual Salary upon his or
her death. This benefit will not be rounded to the next higher $1,000. The
amount of insurance in force will automatically increase if salary
increases. Coverage applies to death from any cause, except with respect
to an on-the-job accident for which an Eligible Employee is protected
while an active employee by any Accident Death Benefit feature of the
SBCPBP.
By enrolling in this coverage, an Eligible Employee automatically waives
his or her eligibility for any Sickness Death Benefit and Pensioner Death
Benefits otherwise payable under the SBCPBP.
The coverage provided by the alternate death benefit life insurance
coverage will continue after Retirement.
To elect this coverage, an Eligible Employee must complete an irrevocable
enrollment and waiver form.
SBC pays the full cost of the alternate death benefit life insurance
coverage.
The insurance benefit provided under this alternate death benefit life
insurance will be paid in a lump sum, unless otherwise elected on the
Eligible Employee's enrollment form.
Alternate death benefit coverage ceases upon an Eligible Employee's
Termination of Employment other than a Retirement. This alternate death
benefit life insurance may not be converted to an individual policy.
Salary Continuation Death Benefit.
The salary continuation death benefit shall only be available under the
conditions specified hereunder, to an Eligible Employee who became an
Eligible Employee before January 1, 1998.
By a written election filed with SBC before January 1, 1998, an Eligible
Employee may terminate his or her rights to a Basic Death Benefit and/or
to Optional Supplementary Coverage (if any) and/or to an Alternate Death
Benefit (if any).
If such an election is filed, and the Eligible Employee dies on or after
the first day of the calendar year following the year in which such
election is filed and prior to the termination of coverage pursuant to
Section 7, the Eligible Employee's Beneficiary or Beneficiaries
theretofore named shall be paid by SBC an amount per annum for ten (10)
years which amounts, in the aggregate, have a net present value, using an
eleven percent (11%) discount rate, equal to one hundred eight-five
percent (185%) of the (i)Basic Death Benefit amount and/or (ii) the amount
elected as Optional Supplementary coverage(if any) and/or (iii) the amount
elected as an Alternate Death Benefit (if any) which would be payable to
his or her Beneficiary or Beneficiaries as of the date of the Eligible
Employee's death, and no other benefit shall be payable hereunder as
either a Basic Death Benefit, Optional Supplementary Coverage or Alternate
Death Benefit . Such payment(s) shall commence no later than sixty (60)
days following the date of the Eligible Employee's death.
On or after January 1, 1998, an Eligible Employee who has elected death
benefits in the form of salary continuation pursuant to this Section may
cancel such election and have his or her Beneficiaries receive death
benefits as insurance in a lump-sum but, an Eligible Employee who cancels
his or her salary continuation election may not thereafter re-elect such
option.
Survivor Annuity Equivalent
Additionally, each Eligible Employee who is not eligible for the Immediate
Automatic Pre-retirement Survivor Annuity of the SBCPBP (or equivalent
thereof) shall be eligible hereunder for a Survivor Annuity Equivalent
benefit of one times salary payable to the surviving spouse of such
Eligible Employee. Such benefit shall be paid as follows: an amount per
annum for ten (10) years shall be paid to the Eligible Employee's
surviving spouse which amounts, in the aggregate, shall have a net present
value, using an eleven percent (11%) discount rate, equal to one hundred
eighty-five percent (185%) of one times the Eligible Employee's salary at
the time of his or her death; provided, however, no such Survivor Annuity
Equivalent payments will be made on or after the date of death of the
surviving spouse. Such payments shall commence no later than sixty (60)
days following the date of the Eligible Employee's death.
For the purposes of the Survivor Annuity Equivalent, the Eligible
Employee's surviving spouse means a spouse legally married to the Eligible
Employee at the time of the Eligible Employee's death.
Eligibility for the Survivor Annuity Equivalent shall automatically cease
on the date of termination of the Eligible Employee's employment. If the
Eligible Employee becomes totally disabled prior to Retirement, the
Eligible Employee shall continue to be eligible for the Survivor Annuity
Equivalent until the expiration of disability benefits. If the Eligible
Employee is granted a leave of absence, other than for military service of
more than four weeks, the Eligible Employee shall continue to be eligible
for the Survivor Annuity Equivalent during such leave of absence.
The Eligible Employee shall cease to be eligible for the Survivor Annuity
Equivalent at the conclusion of the day immediately preceding the date the
Eligible Employee becomes eligible for the Immediate Automatic
Pre-retirement Survivor Annuity of the SBCPBP.
5. Incidents of Ownership. SBC will be the owner and hold all the incidents of
ownership in the Insurance Contract, including the right to dividends, if paid.
The Eligible Employee may specify in writing to SBC, the Beneficiary or
Beneficiaries and the mode of payment for any death proceeds not in excess of
the amounts payable under this Plan. Upon receipt of a written request from the
Eligible Employee, SBC will immediately take such action as shall be necessary
to implement such Beneficiary appointment. Any balance of proceeds from the
Insurance Contract not paid as either a Basic Death Benefit or otherwise
pursuant to the Plan shall be paid to SBC.
6. Premiums. All premiums due on the Insurance Contract shall be paid by SBC.
However, the Eligible Employee agrees to reimburse SBC by January 31 following
the date of each premium payment in an amount such that, for Federal Income Tax
purposes the reimbursement for each year is equal to the amount which would be
required to be included in the Eligible Employee's income for Federal Income Tax
purposes by reasons of the "economic benefit" of the Insurance Contract provided
by SBC; provided, however, that SBC, in its sole discretion, may decline to
accept any such reimbursement and require the inclusion of such "economic
benefit" in the Eligible Employee's income. In its discretion SBC may deduct the
Eligible Employee's portion of the premiums from the Eligible Employee's pay.
7. Termination of Coverage. An Eligible Employee's coverage under this Plan
shall terminate immediately when the Eligible Employee realizes an "Event of
Termination" which shall mean any of the following:
(a) Termination of an Eligible Employee's employment with his or her employing
company for any reason other than (i) death, (ii) Disability as such term
is defined in the SRIP, or (iii) Retirement.
(b) In the case of an Eligible Employee who terminates employment by reason of
a disability but who does not realize an Event of Termination because of
Section 7a(ii) above, a termination of the Eligible Employee's total
Disability that is not accompanied by either a return to employment with
his or her employing company or the Eligible Employee's death or
Retirement.
(c) Except in the case of an Eligible Employee who has theretofore terminated
employment for a reason described in Section 7a(ii) or (iii) above, SBC
elects to terminate the Eligible Employee's coverage under the Plan by a
written notice to that effect given to the Eligible Employee. SBC shall
have no right to amend the Plan or terminate the Eligible Employee's
coverage under the Plan with respect to an Eligible Employee who has
theretofore terminated employment for a reason described in Section 7a(ii)
or (iii) above without the written consent of the Eligible Employee.
8. Non-Competition. Notwithstanding any other provision of this Plan, no
coverage shall be provided under this Plan with respect to any Eligible Employee
who shall, without the written consent of SBC, and while employed by SBC or any
subsidiary thereof, or within three (3) years after termination of employment
from SBC or any subsidiary thereof, engage in competition with SBC or any
subsidiary thereof or with any business with which a subsidiary of SBC or an
affiliated company has a substantial interest (collectively referred to herein
as "Employer business"). For purposes of this Plan, engaging in competition with
any Employer business shall mean engaging by Eligible Employee in any business
or activity in the same geographical market where the same or substantially
similar business or activity is being carried on as an Employer business. Such
term shall not include owning a nonsubstantial publicly traded interest as a
shareholder in a business that competes with an Employer business. However,
engaging in competition with an Employer business shall include representing or
providing consulting services to, or being an employee of, any person or entity
that is engaged in competition with any Employer business or that takes a
position adverse to any Employer business. Accordingly, coverage shall not be
provided under this Plan if, within the time period and without the written
consent specified, Eligible Employee either engages directly in competitive
activity or in any capacity in any location becomes employed by, associated
with, or renders service to any company, or parent or affiliate thereof, or any
subsidiary of any of them, if any of them is engaged in competition with an
Employer business, regardless of the position or duties the Eligible Employee
takes and regardless of whether or not the employing company, or the company
that Eligible Employee becomes associated with or renders service to, is itself
engaged in direct competition with an Employer business.
9. Restriction on Assignment. The Eligible Employee may assign all or any part
of his or her right, title, claim, interest, benefits and all other incidents of
ownership which he or she may have in the Insurance Contract to any other
individual or trustee, provided that any such assignment shall be subject to the
terms of this Plan; except neither the Eligible Employee nor any other person
shall have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate or convey in advance of
actual receipt the amounts, if any, payable as a Salary Continuation Death
Benefit hereunder , which are, and all rights to which are, expressly declared
to be unassignable and non-transferable. No part of the amounts payable as a
Salary Continuation Death Benefit hereunder shall, prior to actual payment, be
subject to seizure or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by the Eligible Employee or any other
person, nor be transferable by operation of law in the event of the Eligible
Employee's or any other person's bankruptcy or insolvency. Except as provided in
this Section 8, no assignment or alienation of any benefits under the Plan will
be permitted or recognized.
10. Unsecured General Creditor. Except to the extent of rights with respect to
the Insurance Contract in the absence of an election to receive benefits in
Salary Continuation Death Benefit form, the Eligible Employee and his or her
Beneficiaries, heirs, successors and assigns shall have no legal or equitable
rights, interest or claims in any property or assets of SBC, nor shall they be
beneficiaries, or have any rights, claims or interests in, any life insurance
policies, annuity contracts or the proceeds therefrom owned or which may be
acquired by SBC ("Policies"); such Policies or other assets of SBC shall not be
held under any trust for the benefit of the Eligible Employee , his or her
designated beneficiaries, heirs, successors or assigns, or held in any way as
collateral security for the fulfilling of the obligations of SBC under this
Agreement; any and all of SBC's assets and Policies shall be, and remain, the
general, unpledged, unrestricted assets of SBC; SBC shall have no obligation to
acquire any Policies or any other assets; and SBC's obligations under this
Agreement shall be merely that of an unfunded and unsecured promise of SBC to
pay money in the future.
11. Employment Not Guaranteed. Nothing contained in this Plan nor any action
taken hereunder shall be construed as a contract of employment or as giving the
Eligible Employee any right to be retained in the employ of any SBC company.
12. Protective Provisions. The Eligible Employee will cooperate with SBC by
furnishing any and all information requested by SBC, in order to facilitate the
payment of benefits hereunder, taking such physical examinations as SBC may deem
necessary and taking such other relevant action as may be requested by SBC, in
order to facilitate the payment of benefits hereunder. If the Eligible Employee
refuses so to cooperate, the Eligible Employee's participation in the Plan shall
terminate and SBC shall have no further obligation to the Eligible Employee or
his or her designated Beneficiary hereunder. If the Eligible Employee commits
suicide during the two-year period beginning on the date of eligibility under
the Plan, or if the Eligible Employee makes any material misstatement of
information or nondisclosure of medical history, then no benefits will be
payable by reason of this Plan to the Eligible Employee or his or her designated
Beneficiary, or in SBC's sole discretion, benefits may be payable in a reduced
amount.
13. Change in Status. In the event of a change in the employment status of an
Eligible Employee to a status in which he or she is no longer an Eligible
Employee under the Plan, such Eligible Employee shall immediately cease to be
eligible for any benefits under this Plan; provided, however, such survivor
benefits as would be available to such employee by reason of his or her new
status but which do not automatically become effective upon attainment of such
new status shall continue to be provided under this Plan until such benefits
become effective or until such employee has had reasonable opportunity to
effectuate such benefits but has failed to take any requisite action necessary
for such benefits to become effective.
14. Named Fiduciary. If this Plan is subject to the Employee Retirement Income
Security Act of 1974 (ERISA), SBC is the "named fiduciary" of the Plan.
15. Applicable Law. This Plan and the rights and obligations hereunder shall be
governed by and construed in accordance with the laws of the State of Texas to
the extent such law is not preempted by ERISA.
16. Administration of the Plan. The Committee shall be the sole administrator of
the Plan and will administer the Plan, interpret, construe and apply its
provisions in accordance with its terms. The Committee shall further establish,
adopt or revise such rules and regulations as it may deem necessary or advisable
for the administration of the Plan. All decisions of the Committee shall be
binding.
17. Relation to Prior Plans. This Plan supersedes and replaces prior Senior
Management Survivor Benefit, Senior Management Supplementary Life Insurance, and
Senior Management Alternate Death Benefit Life Insurance Plans as in effect
prior to January 1, 1986, except such plans shall continue to apply to Eligible
Employees who retired before January 1, 1986; provided, however, that with
respect to those Eligible Employees who retired during calendar year 1986 by
reason of the fact of attaining age 65, the Post-Retirement Benefit provided
pursuant to the Senior Management Survivor Benefit Plan as in effect prior to
January 1, 1986, shall continue to apply and the post-retirement benefit
provided under the Basic Death Benefit portion hereof shall not apply.
18. Amendments and Termination. This Plan may be modified or terminated at any
time in accordance with the provisions of SBC's Schedule of Authorizations. A
modification or Plan termination may affect present and future Eligible
Employees; provided, however, that no modification shall be made to this Plan
with respect to an Eligible Employee who terminates employment for reason of
disability or Retirement), nor shall a termination of the Plan operate so as to
be applicable to such an individual, without the written consent of the Eligible
Employee.
EXHIBIT 10d
LOGO
SBC Communications Inc.
SUPPLEMENTAL RETIREMENT INCOME PLAN
Effective: January 1, 1984
Revisions Effective: November 21, 1997
<PAGE>
SUPPLEMENTAL RETIREMENT INCOME PLAN
TABLE OF CONTENTS
Section Subject Page
1. Purpose .................................................1
2. Definitions..............................................1-4
3. Plan ("SRIP") Benefits...................................4
3.1. Termination of Employment/Vesting.....................4&5
3.2. Disability............................................6
3.3. Benefit Payout Alternatives...........................6-8
3.4. Mid Career Hires......................................8
4. Death Benefits...........................................9
5. Payment..................................................10-12
6. Conditions Related to Benefits...........................12-14
7. Miscellaneous............................................14-16
Attachment (Agreement)
<PAGE>
SUPPLEMENTAL RETIREMENT INCOME PLAN
1. Purpose. The purpose of the Supplemental Retirement Income Plan ("Plan") is
to provide Eligible Employees with retirement benefits to supplement benefits
payable pursuant to SBC's qualified group pension plans.
2. Definitions. For purposes of this Plan, the following words and phrases shall
have the meanings indicated, unless the context clearly indicates otherwise:
Administrative Committee. "Administrative Committee" means a Committee
consisting of the Senior Vice President-Human Resources and two or more
other members designated by the Senior Vice President-Human Resources
who shall administer the Plan.
Agreement. "Agreement" means the written agreement (substantially in the
form attached to this Plan) that shall be entered into by SBC and a
Participant to carry out the Plan with respect to such Participant. Entry
into a new Agreement shall not be required upon amendment of the Plan or
upon an increase in a Participant's Retirement Percent (which increase
shall nevertheless be utilized to determine the Participant's benefits
hereunder even though not reflected in the Participant's Agreement),
except entry into a new Agreement shall be required in the case of an
amendment which alters, to the detriment of a Participant, the benefits
described in this Plan as applicable to such Participant (See Section
6.5). Such new Agreement shall operate as the written consent required by
Section 6.5 of the Participant to such amendment.
Beneficiary. "Beneficiary" shall mean any beneficiary or beneficiaries
designated by the Eligible Employee pursuant to the SBC Rules for
Employee Beneficiary Designations as may hereafter be amended from
time-to-time ("Rules").
Chairman. "Chairman" shall mean the Chairman of the Board of SBC
Communications Inc.
Disability. "Disability" means any Termination of Employment prior to
being Retirement Eligible that the Administrative Committee, in its
complete and sole discretion, determines is by reason of a Participant's
total and permanent disability. The Administrative Committee may require
that the Participant submit to an examination by a competent physician or
medical clinic selected by the Administrative Committee. On the basis of
such medical evidence, the determination of the Administrative Committee
as to whether or not a condition of total and permanent disability exists
shall be conclusive.
Earnings. "Earnings" means for a given calendar year the Participant's:
(1) bonus made as a short term award during the calendar year but not
exceeding 200% of the target amount of such bonus (or such other portion
of the bonus as may be determined by the Human Resources Committee of the
Board of SBC), plus (2) base salary before reduction due to any
contribution pursuant to any deferred compensation plan or agreement
provided by SBC, including but not limited to compensation deferred in
accordance with Section 401(k) of the Internal Revenue Code.
Eligible Employee. "Eligible Employee" means an Officer or a
non-Officer employee of any SBC company who is designated by the
Chairman as eligible to participate in the Plan. Effective on and
after July 1, 1994, only an Officer may become an Eligible Employee.
Final Average Earnings. "Final Average Earnings" means the average of the
Participant's Monthly Earnings for the thirty-six (36) consecutive months
out of the one hundred twenty (120) months next preceding the
Participant's Termination of Employment which yields the highest average
earnings. If the Participant has fewer than thirty-six (36) months of
employment, the average shall be taken over his or her period of
employment.
Immediate Annuity Value. "Immediate Annuity Value" means the annual amount
of annuity payments that would be paid out of a plan on a single life
annuity basis if payment of the plan's benefit was commenced immediately
upon Termination of Employment, notwithstanding the form of payment of the
plan's benefit actually made to the Participant (i.e., joint and survivor
annuity, lump sum, etc.) and notwithstanding the actual commencement date
of the payment of such benefit.
Monthly Earnings. "Monthly Earnings" means one-twelfth (1/12) of
Earnings.
Officer. "Officer" shall mean an individual who is designated by the
Chairman as eligible to participate in the Plan who is an elected
officer of SBC or of any SBC subsidiary (direct or indirect).
Participant. A "Participant" means an Eligible Employee who has
entered into an Agreement to Participate in the Plan.
Retirement. "Retirement" shall mean the Termination of Employment of an
Eligible Employee for reasons other than death, on or after the earlier of
the following dates: (1) the date the Eligible Employee is Retirement
Eligible or (2) the date the Eligible Employee has attained one of the
following combinations of age and service at Termination of Employment on
or after April 1, 1997, except as otherwise indicated below:
Net Credited Service Age
10 years or more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
With respect to an Eligible Employee who is granted an EMP Service Pension
under and pursuant to the provisions of the SBC Pension Benefit Plan -
Nonbargained Program ("SBCPBP") upon Termination of Employment, the term
"Retirement" shall include such Eligible Employee's Termination of
Employment.
Retirement Eligible. "Retirement Eligible" or "Retirement Eligibility"
means that a Participant has attained age 55; provided, however, if (1)
the Participant is, or has been within the one year period immediately
preceding the relevant date, an Officer with 30 or more Years of Service
and has not attained age 55, or 2) the Participant has 15 or more Years of
Service and has not attained age 55 and is, or has been within the one
year period immediately preceding the relevant date, the Chairman or a
Direct Reporting Officer as such term is defined in SBC's Schedule of
Authorizations, he shall nevertheless be deemed to be Retirement Eligible.
Note: Any reference in any other SBC plan to a person being eligible to
retire with an immediate pension pursuant to the SBC Supplemental
Retirement Income Plan shall be interpreted as having the same meaning as
the term Retirement Eligible.
Retirement Percent. "Retirement Percent" means the percent specified
in the Agreement with the Participant which establishes a Target
Retirement Benefit (see Section 3.1) as a percentage of Final Average
Earnings.
SBC. "SBC" means SBC Communications Inc.
Service Factor. "Service Factor" means, unless otherwise agreed in writing
by the Participant and SBC, either (a) a deduction of one and forty-three
hundredths percent (1.43%) multiplied by the number by which (i)
thirty-five (or thirty in the case of an Officer) exceeds (ii) the number
of Years of Service of the Participant, or (b) a credit of seventy-one
hundredths percent (0.71%) multiplied by the number by which (i) the
number of Years of Service of the Participant exceeds (ii) thirty-five (or
thirty in the case of an Officer). For purposes of the above computation,
a deduction shall result in the Service Factor being subtracted from the
Retirement Percent whereas a credit shall result in the Service Factor
being added to the Retirement Percent.
Termination of Employment. "Termination of Employment" means the
ceasing of the Participant's employment from the SBC controlled group
of companies for any reason whatsoever, whether voluntarily or
involuntarily.
Year. A "Year" is a period of twelve (12) consecutive calendar months.
Year of Service. "Year of Service" means each complete Year of continuous,
full-time service as an employee beginning on the date when a Participant
first began such continuous employment with any SBC company and on each
anniversary of such date, including service prior to the adoption of this
Plan.
3. Plan ("SRIP") Benefits
3.1. Termination of Employment/Vesting. With respect to (1) a person
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who becomes a Participant prior to January 1, 1998, or (2) a
person who prior to January 1, 1998 is an officer of a Pacific
Telesis Group ("PTG") company and becomes a Participant after
January 1, 1998, upon such a Participant's Termination of
Employment, SBC shall pay to such Participant a monthly SRIP
Benefit in accordance with Section 3.3. The amount of such
monthly SRIP Benefit is calculated as follows:
Final Average Earnings
x Revised Retirement Percentage
= Target Retirement Benefit
- Immediate Annuity Value of any SBC/PTG Qualified Pensions
- Immediate Annuity Value of any other SBC/PTG Non-Qualified
Pensions other than SRIP
= Target Benefit
- Age Discount
= SRIP Benefit immediately payable upon Termination of
Employment
With respect to a person who is appointed an Officer and becomes a
Participant on or after January 1, 1998, upon such a Participant's
Termination of Employment, SBC shall pay to such Participant a
monthly SRIP Benefit in accordance with Section 3.3. The amount of
such monthly SRIP Benefit is calculated as follows:
Final Average Earnings
x Revised Retirement Percentage
= Target Retirement Benefit
- Age Discount
= Discounted Target Benefit
- Immediate Annuity Value of any SBC/PTG Qualified Pensions
- Immediate Annuity Value of any SBC/PTG Non-Qualified
Pensions, other than SRIP
= SRIP Benefit immediately payable upon Termination of
Employment
Where in both of the above cases the following apply:
(a) Revised Retirement Percentage = Retirement Percent +
Service Factor
(b) For purposes of determining the Service Factor, the
Participant's actual Years of Service as of the date of
Termination of Employment, to the day, shall be used.
(c) For purposes of determining the Final Average Earnings, the
Participant's Earnings history as of the date of Termination
of Employment shall be used.
(d) Age Discount means the Participant's SRIP Benefit shall be
decreased by five-tenths of one percent (.5%) for each month
that the date of the commencement of payment precedes the date
on which the Participant will attain age 60.
Notwithstanding the foregoing, if at the time of Termination
of Employment the Participant (1) is, or has been within the
one year period immediately preceding Participant's
Termination of Employment, an Officer with 30 or more years of
Service or (2) has 15 or more Years of Service and is, or has
been within the one year period immediately preceding
Participant's Termination of Employment, the Chairman or a
Direct Reporting Officer, such Participant's Age Discount
shall be zero.
Except to true up for an actual short term award paid following
Termination of Employment, there shall be no recalculation of a
Participant's monthly SRIP Benefit following Participant's
Termination of Employment.
If a Participant who has commenced payment of his or her SRIP
Benefit dies, his or her Beneficiary shall be entitled to receive
the remaining installments of such SRIP Benefit, if any, which are
payable in accordance with Section 3.3. If a Participant dies while
in active service, Section 4 shall apply.
Notwithstanding any other provision of this Plan, upon any
Termination of Employment of the Participant for a reason other than
death or Disability, SBC shall have no obligation to the Participant
under this Plan if the Participant has less than 5 Years of Service
at the time of Termination of Employment.
3.2 Disability. Upon a Participant's Disability and application for
benefits under the Social Security Act as now in effect or as
hereinafter amended, the Participant will continue to accrue Years
of Service during his or her Disability until the earliest of his or
her:
(a) Recovery from Disability,
(b) Retirement, or
(c) Death.
Upon the occurrence of either (a) Participant's recovery from
Disability prior to his or her Retirement Eligibility if Participant
does not return to employment, or (b) Participant's Retirement, the
Participant shall be entitled to receive a SRIP Benefit in
accordance with Section 3.1.
For purposes of calculating the foregoing benefit, the Participant's
Final Average Earnings shall be determined using his or her Earnings
history as of the date of his or her Disability.
If a Participant who continues to have a Disability dies prior to
his or her Retirement Eligibility, the Participant will be treated
in the same manner as if he or she had died while in employment (See
Section 4.1).
3.3 Benefit Payout Alternatives. The normal form of a Participant's
benefits hereunder shall be a Life with 10-Year Certain Benefit as
described in Section 3.3(a). However, a Participant may elect in his
or her Agreement to convert his or her benefits hereunder, into one
of the Alternative Benefits described in Section 3.3(b) and (c).
(a) Life with a 10-Year Certain Benefit. An annuity payable
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during the longer of (i) the life of the Participant or
(ii) the 10-year period commencing on the date of the first
payment and ending on the day next preceding the tenth
anniversary of such date (the "Life With 10-Year Certain
Benefit"). If a Participant who is receiving a Life with
10-Year Certain Benefit dies prior to the expiration of the
10-year period described in this Section 3.3(a), the
Participant's Beneficiary shall be entitled to receive the
remaining Life With 10-Year Certain Benefit installments
which would have been paid to the Participant had the
Participant survived for the entire such 10-year period.
(b) Joint and 100% Survivor Benefit. A joint and one hundred
percent (100%) survivor annuity payable for life to the
Participant and at his or her death to his or her Beneficiary,
in an amount equal to one hundred percent (100%) of the amount
payable during the Participant's life, for life (the "Joint
and 100% Survivor Benefit").
(c) Joint and 50% Survivor Benefit. A joint and fifty percent
(50%) survivor annuity payable for life to the Participant and
at his or her death to his or her Beneficiary, in an amount
equal to fifty percent (50%) of the amount payable during the
Participant's life, for life (the "Joint and 50% Survivor
Benefit").
The Benefit Payout Alternatives described in Section 3.3(b) and
3.3(c) shall be the actuarially determined equivalent (as determined
by the Administrative Committee in its complete and sole discretion)
of the Life With 10-Year Certain Benefit that is converted by such
election.
Any election made pursuant to this Section 3.3 shall be made in the
Participant's Agreement and once made shall be irrevocable.
Notwithstanding the foregoing, a Participant may elect in his or her
Agreement to defer the time by which he or she is required to elect
one of the foregoing forms of Benefit Payout Alternatives. Any such
deferred election must be made by the Participant in writing to the
Administrative Committee no later than the last day of the calendar
year preceding the calendar year in which Participant's Retirement
takes place or other benefit payment under this Plan commences.
If a Participant's Agreement fails to show an election of a Benefit
Payout Alternative, or if the Participant having chosen to defer his
or her benefit election, fails to make a timely election of
benefits, such Participant's form of benefit shall be the Life With
10-Year Certain Benefit which is described in Section 3.3(a).
Notwithstanding the foregoing, in the event of the death of a
designated annuitant during the life of the Participant, the
Participant's election to have a Benefit Payout Alternative
described in Section 3.3(b) or 3.3(c) shall be deemed to be revoked,
in which event, subject to the conditions and limitations specified
in the immediately preceding paragraph, or within the ninety-day
period following the death of the annuitant if such period would end
later than the time allowed for an election by the immediately
preceding paragraph, the Participant may elect to have his or her
benefit, or remaining benefit, under the Plan, as the case may be,
paid in any of the forms described in this Section 3.3. In the event
the Participant's designated annuitant predeceases the Participant
and the Participant fails to make a timely election in accordance
with the provisions of the immediately preceding sentence, the
Participant's benefit, or remaining benefit, as the case may be,
shall be paid or reinstated, as the case may be, in the form of a
Life With 10-Year Certain Benefit as described in Section 3.3(a).
Any conversion of benefit from one form to another pursuant to the
provisions of this paragraph shall be subject to actuarial
adjustment (as determined by the Administrative Committee in its
complete and sole discretion) such that the Participant's new
benefit is the actuarial equivalent of the Participant's remaining
prior form of benefit. Payments pursuant to Participant's new form
of benefit shall be effective commencing with the first monthly
payment for the month following the death of the annuitant.
Notwithstanding any other provision of this Plan to the contrary,
payment in the form of a Benefit Payout Alternative described in
Section 3.3(b) or 3.3(c), with a survivor annuity for the benefit of
the Participant's spouse as Beneficiary, may be waived by the
annuitant with the consent of the Participant in the event of the
divorce (or legal separation) of said annuitant from said
Participant. In such event, the Participant's benefit shall be
reinstated to the remainder of the Life with 10-Year Certain Benefit
as described in Section 3.3(a) (i.e., the 10-Year period as
described in Section 3.3(a) shall be the same 10-year period as if
such form of benefit was the form of benefit originally selected and
the expiration date of such period shall not be extended beyond its
original expiration date) effective commencing with the first
monthly payment following receipt of the waiver and Participant
consent in a form acceptable to the Administrative Committee. A
waiver of the type described in this paragraph shall be irrevocable.
3.4. Mid-Career Hires. The modification of this Plan's benefit as
applicable to a Participant who is deemed a Mid-Career Hire and the
definition of a Mid-Career Hire shall be as defined in SBC's
mid-career pension plan applicable to such Participant.
4. Death Benefits
4.1 Death. If a Participant dies prior to his or her Retirement, a
pre-retirement death benefit will be calculated and paid as though
the Participant had retired on the day prior to the date of death.
Notwithstanding the provisions of Section 3.3, if a Participant's
Agreement fails to show an election of a Benefit Payout Alternative,
or if the Participant, having chosen to defer his benefit election,
failed to make a timely election of benefits prior to his death, the
form of the pre-retirement death benefit shall, at the option of the
Participant's Beneficiary, be either the Life With 10-Year Certain
Benefit form of the Participant's benefit or a Beneficiary Life
Annuity (as such term is hereinafter described) based on the life
expectancy of the Beneficiary. If paid as a Beneficiary Life Annuity
based on the Life of the Beneficiary, such benefit shall be the
actuarially determined equivalent (as determined by the
Administrative Committee in its complete and sole discretion) of the
Life With 10-Year Certain Benefit; provided, however, should the
Beneficiary die prior to the payment to the Beneficiary of the total
dollar amount of the Life with 10-Year Certain Benefit, the
remaining dollar balance of such Life With 10-Year Certain Benefit
shall be paid in accordance with the Participant's beneficiary
designation and the Rules at the same monthly rate of payment as
would have been the monthly payment pursuant to the 10-year payment
schedule had the Life With 10-Year Certain Benefit been selected.
4.2 Disability. In the event that a Participant terminates employment
prior to Retirement by reason of a Disability that entitles the
Participant to continue to accrue Years of Service until Retirement
Eligibility pursuant to Section 3.2 and thereafter dies after
attaining Retirement Eligibility, the Employer shall pay to the
Participant's Beneficiary the Death Benefit specified in Section 4.1
based on the Participant's Monthly Earnings for the twelve (12)
months preceding his or her Disability. No death benefit shall be
payable if the Participant dies prior to attaining Retirement
Eligibility.
4.3 Termination of Employment. If a Participant terminates employment
other than by reason of Disability prior to Retirement Eligibility,
no death benefit shall be payable to the Participant's Beneficiary.
5. Payment.
5.1 Commencement of Payments. Commencement of payments under this Plan
shall begin not later than sixty (60) days following the occurrence
of an event with entitles a Participant (or a Beneficiary) to
payments under this Plan.
5.2 Withholding; Unemployment Taxes. To the extent required by the law
in effect at the time payments are made, any taxes required to be
withheld by the Federal or any state or local government shall be
withheld from payments made hereunder.
5.3 Recipients of Payments; Designation of Beneficiary. All payments to
be made under the Plan shall be made to the Participant during his
or her lifetime, provided that if the Participant dies prior to the
completion of such payments, then all subsequent payments under the
Plan shall be made to the Participant's Beneficiary or
Beneficiaries.
In the event of the death of a Participant, distributions/benefits
under this Plan shall pass to the Beneficiary (ies) designated by
the Participant in accordance with the Rules.
5.4 Additional Benefit. The reduction of any benefits payable under the
SBC Pension Benefit Plan ("SBCPBP"), which results from
participation in the SBC Senior Management Deferred Compensation
Program of 1988, will be restored under this Plan.
5.5 No Other Benefits. No benefits shall be paid hereunder to the
Participant or his or her Beneficiary except as specifically
provided herein.
5.6 Small Benefit. Notwithstanding any election made by the Participant,
the Administrative Committee in its sole discretion may pay any
benefit in the form of a lump sum payment if the lump sum equivalent
amount is or would be less than $10,000 when payment of such benefit
would otherwise commence.
5.7 Special Increases.
5.7.1 1990 Special Increase. Notwithstanding any other provision of
this Plan to the contrary:
(a) Effective July 1, 1990, the monthly pension benefit
amount then being paid hereunder to a retired
Participant whose Plan payments began before January
1990 shall be increased by 1/30 of 5.0% for each
month from and including January 1988 or the month in
which said Participant's pension payments began,
whichever is later, through and including June 1990,
inclusive.
(b) Effective July 1, 1990, the present and/or future
monthly payment hereunder of a surviving annuitant of
a Participant whose Plan payments began before
January 1990 or of a Participant who died in active
service before January 1990, shall be increased by
the same percentage as the related pension was or
would have been increased under the provisions of
Paragraph (a) of this Section 5.7.1.
5.7.2 Enhanced Management Pension (EMP) Flow-Through For
Participant Receiving Other Than an SBCPBP "Cash Balance"
Benefit. Notwithstanding any other provision of this Plan to
the contrary:
(a) Effective December 30, 1991, a Participant who as of
the date of his or her Retirement satisfies the
requirements for a service pension under the terms of
the SBCPBP as it existed prior to December 30, 1991,
shall have his or her SRIP Benefit determined without
subtracting any increase in his or her SBCPBP (or
successor plan) pension amount attributable to the
Enhanced Management Pension ("EMP") provisions
thereof, i.e., EMP benefits will "flow-through" to
the Participant; provided, however, such additional
benefit amounts corresponding to term of employment
extending beyond age 65 through application of the
EMP provisions shall be subtracted.
(b) EMP flow-through shall not apply in the case of any
person who becomes an Eligible Employee after December
31, 1997.
5.7.3 1993 Special Increase and Subsequent Special
Increases. Notwithstanding any other provisions
of this Plan to the contrary:
(a) Effective July 1, 1993, the monthly pension benefit
amount then being paid hereunder to (1) all retired
Participants whose Plan payments began before July 1,
1993, (2) then current and contingent annuitants of
such retired Participants who elected one of the
Plan's survivor annuities and (3) then current
annuitants of employees who before July 1, 1993 died
in active service shall be increased in the same
percentages as the SBCPBP ad hoc pension increase
percentages effective July 1, 1993.
(b) Any time after July 1, 1993 that SBCPBP is amended to
provide for an ad hoc pension increase for SBCPBP
nonbargained participants, the same percentage increase
shall apply to Plan benefit amounts.
6. Conditions Related to Benefits.
6.1 Administration of Plan. The Administrative Committee shall be the
sole administrator of the Plan and will administer the Plan,
interpret, construe and apply its provisions in accordance with its
terms. The Administrative Committee shall further establish, adopt
or revise such rules and regulations as it may deem necessary or
advisable for the administration of the Plan. All decisions of the
Administrative Committee shall be final and binding unless the Board
of Directors should determine otherwise.
6.2 No Right to SBC Assets. Neither a Participant nor any other person
shall acquire by reason of the Plan any right in or title to any
assets, funds or property of any SBC company whatsoever including,
without limiting the generality of the foregoing, any specific funds
or assets which SBC, in its sole discretion, may set aside in
anticipation of a liability hereunder, nor in or to any policy or
policies of insurance on the life of a Participant owned by SBC. No
trust shall be created in connection with or by the execution or
adoption of this Plan or any Agreement, and any benefits which
become payable hereunder shall be paid from the general assets of
SBC. A Participant shall have only a contractual right to the
amounts, if any, payable hereunder unsecured by any asset of SBC.
6.3 Trust Fund. SBC shall be responsible for the payment of all benefits
provided under the Plan. At its discretion, SBC may establish one or
more trusts, for the purpose of providing for the payment of such
benefits. Such trust or trusts may be irrevocable, but the assets
thereof shall be subject to the claims of SBC's creditors. To the
extent any benefits provided under the Plan are actually paid from
any such trust, SBC shall have no further obligation with respect
thereto, but to the extent not so paid, such benefits shall remain
the obligation of, and shall be paid by SBC.
6.4 No Employment Rights. Nothing herein shall constitute a contract of
continuing employment or in any manner obligate any SBC company to
continue the service of a Participant, or obligate a Participant to
continue in the service of any SBC company and nothing herein shall
be construed as fixing or regulating the compensation paid to a
Participant.
6.5 Modification or Termination of Plan. This Plan may be modified or
terminated at any time in accordance with the provisions of SBC's
Schedule of Authorizations. A modification may affect present and
future Eligible Employees. SBC also reserves the sole right to
terminate at any time any or all Agreements. In the event of
termination of the Plan or of a Participant's Agreement, a
Participant shall be entitled to benefits hereunder, if prior to the
date of termination of the Plan or of his or her Agreement, such
Participant has attained 5 Years of Service, in which case,
regardless of the termination of the Plan/Participant's Agreement,
such Participant shall be entitled to benefits at such time as
provided in and as otherwise in accordance with the Plan and his or
her Agreement, provided, however, Participant's benefit shall be
computed as if Participant had terminated employment as of the date
of termination of the Plan or of his or her Agreement; provided
further, however, Participant's service subsequent to Plan/Agreement
termination shall be recognized for purposes of reducing or
eliminating the Age discount provided for by Section 3.1(d). No
amendment, including an amendment to this Section 6.5, shall be
effective, without the written consent of a Participant, to alter,
to the detriment of such Participant, the benefits described in this
Plan as applicable to such Participant as of the effective date of
such amendment. For purposes of this Section 6.5, an alteration to
the detriment of a Participant shall mean a reduction in the amount
payable hereunder to a Participant to which such Participant would
be entitled if such Participant terminated employment at such time,
or any change in the form of benefit payable hereunder to a
Participant to which such Participant would be entitled if such
Participant terminated employment at such time. Any amendment which
reduces Participant's benefit hereunder to adjust for a change in
his or her pension benefit resulting from an amendment to any
company-sponsored defined benefit pension plan which changes the
pension benefits payable to all employees, shall not require the
Participant's consent. Written notice of any amendment shall be
given to each Participant.
6.6 Offset. If at the time payments or installments of payments are to
be made hereunder, a Participant or his Beneficiary or both are
indebted to any SBC company, then the payments remaining to be made
to the Participant or his Beneficiary or both may, at the discretion
of the Board of Directors, be reduced by the amount of such
indebtedness; provided, however, that an election by the Board of
Directors not to reduce any such payment or payments shall not
constitute a waiver of such SBC company's claim for such
indebtedness.
6.7 Change in Status. In the event of a change in the employment status
of a Participant to a status in which he is no longer an Eligible
Employee, the Participant shall immediately cease to be eligible for
any benefits under this Plan except such benefits as had previously
vested. Only Participant's Years of Service and Earnings history
prior to the change in his employment status shall be taken into
account for purposes of determining Participant's vested benefits
hereunder.
7. Miscellaneous.
7.1 Nonassignability. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer, hypothecate or
convey in advance of actual receipt of the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which
are, expressly declared to be unassignable and non-transferable. No
part of the amounts payable shall, prior to actual payment, be
subject to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant or
any other person, nor be transferable by operation of law in the
event of a Participant's or any other person's bankruptcy or
insolvency.
7.2 Non-Competition. Notwithstanding any other provision of this Plan,
all benefits provided under the Plan with respect to a Participant
shall be forfeited and canceled in their entirety if the
Participant, without the consent of SBC and while employed by SBC or
any subsidiary thereof or within three (3) years after termination
of such employment, engages in competition with SBC or any
subsidiary thereof or with any business with which SBC or a
subsidiary or affiliated company has a substantial interest
(collectively referred to herein as "Employer business") and fails
to cease and desist from engaging in said competitive activity
within 120 days following receipt of written notice from SBC to
Participant demanding that Participant cease and desist from
engaging in said competitive activity. For purposes of this Plan,
engaging in competition with any Employer business shall mean
engaging by the Participant in any business or activity in the same
geographical market where the same or substantially similar business
or activity is being carried on as an Employer business. Such term
shall not include owning a nonsubstantial publicly traded interest
as a shareholder in a business that competes with an Employer
business. However, engaging in competition with an Employer business
shall include representing or providing consulting services to, or
being an employee of, any person or entity that is engaged in
competition with any Employer business or that takes a position
adverse to any Employer business. Accordingly, benefits shall not be
provided under this Plan if, within the time period and without the
written consent specified, Participant either engages directly in
competitive activity or in any capacity in any location becomes
employed by, associated with, or renders service to any company, or
parent or affiliate thereof, or any subsidiary of any of them, if
any of them is engaged in competition with an Employer business,
regardless of the position or duties the Participant takes and
regardless of whether or not the employing company, or the company
that Participant becomes associated with or renders service to, is
itself engaged in direct competition with an Employer business.
7.3 Notice. Any notice required or permitted to be given to the
Administrative Committee under the Plan shall be sufficient if in
writing and hand delivered, or sent by certified mail, to the
principal office of SBC, directed to the attention of the Senior
Vice President-Human Resources. Any notice required or permitted to
be given to a Participant shall be sufficient if in writing and hand
delivered, or sent by certified mail, to Participant at
Participant's last known mailing address as reflected on the records
of his or her employing company. Notice shall be deemed given as of
the date of delivery or, if delivery is made by mail, as of the date
shown on the postmark or on the receipt for certification.
7.4 Validity. In the event any provision of this Plan is held invalid,
void or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of this plan.
7.5 Applicable Law. This Plan shall be governed and construed in
accordance with the laws of the State of Texas to the extent not
preempted by the Employee Retirement Income Security Act of 1974, as
amended, and regulations thereunder ("ERISA").
7.6 Plan Provisions in Effect Upon Termination of Employment. The Plan
provisions in effect upon a Participant's termination of employment
shall govern the provision of benefits to such Participant.
Notwithstanding the foregoing sentence, the benefits of a
Participant whose Retirement occurred prior to February 1, 1989,
shall be subject to the provisions of Section 3.3 hereof.
<PAGE>
SUPPLEMENTAL RETIREMENT INCOME PLAN AGREEMENT
THIS AGREEMENT is made and entered into at San Antonio, Texas as of
this _____ day of _______________, by and between SBC Communications Inc.
("SBC") and __________ (" Participant").
WHEREAS, SBC has adopted a Supplemental Retirement Income Plan
(the "Plan"); and
WHEREAS, the Participant has been determined to be eligible to
participate in the Plan; and
WHEREAS, the Plan requires that an agreement be entered into between
SBC and Participant setting out certain terms and benefits of the Plan as they
apply to the Participant;
NOW, THEREFORE, SBC and the Participant hereby agree as follows:
1. The Plan is hereby incorporated into and made a part of this
Agreement as though set forth in full herein. The parties
shall be bound by, and have the benefit of, each and every
provision of the Plan as set forth in the Plan.
2. The Participant was born on ___________, and his or her
present employment began on _____________,
3. The Participant's "Retirement Percent" which is described in
the Plan shall be ________ percent (__%)
4. Election as to Form of Benefits. The Participant elects the
Benefit Payout Alternative listed below next to which the
Participant has subscribed his or her initials. If no option
is initialed, the Participant's form of benefit under the Plan
shall be the Life With 10-Year Certain Benefit, which is
listed under a. below:
____ a. Life with 10-Year Certain Benefit
described in Section 3.3(a) of the Plan.
____ b. Joint and 100% Survivor Benefit described
in Section 3.3(b) of the Plan.
____ c. Joint and 50% Survivor Benefit described
in Section 3.3(c) of the Plan.
____ d. The Participant elects to defer making an election as
to the form of benefit until no later than the last day
of the calendar year preceding the calendar year in
which the Participant's Retirement takes place or SRIP
benefit commences.
This Agreement supersedes all prior Supplemental Retirement Income
Plan Agreements between SBC and Participant, and any amendments thereto, and
shall inure to the benefit of, and be binding upon, SBC, its successors and
assigns, and the Participant and his or her Beneficiaries.
IN WITNESS WHEREOF, the parties hereto have signed and entered into
this Agreement on and as of the date first above written.
SBC:
By ___________________________
Senior Vice President-
Human Resources
PARTICIPANT:
By ___________________________
EXHIBIT 10h
LOGO
SBC Communications Inc.
SALARY AND
INCENTIVE AWARD DEFERRAL PLAN
Effective: January 1, 1984
Revisions Effective: November 21, 1997
<PAGE>
SALARY AND
INCENTIVE AWARD DEFERRAL PLAN
TABLE OF CONTENTS
Section Subject Page
1. Purpose.................................. 1
2. Definitions.............................. 1
3. Eligibility.............................. 1
4. Participation............................ 1&2
5. Deferred Accounts........................ 2&3
6. Distribution............................. 3-6
7. Amendment and Termination................ 6
8. Miscellaneous............................ 6
<PAGE>
SBC SALARY AND
INCENTIVE AWARD DEFERRAL PLAN
1. Purpose. The purpose of the Salary and Incentive Award Deferral Plan (the
"Plan") is to provide Eligible Employees with a means for deferring the
receipt of income.
2. Definitions. For purposes of this Plan, the following words and phrases
shall have the meanings indicated, unless the context clearly indicates
otherwise:
Base Salary. "Base Salary" or "Salary" shall mean the Eligible
Employee's annual base salary, excluding commissions, lump-sum merit
payments in lieu of salary, and TEAM Awards, and before reduction
due to any contribution pursuant to this Plan or reduction pursuant
to any other deferral plan of SBC.
Chairman. "Chairman" shall mean the Chairman of the Board of SBC
Communications Inc.
Committee. "Committee" shall mean the Human Resources Committee
of the Board of SBC Communications Inc.
Eligible Employee. "Eligible Employee" shall mean an Officer or
a non-Officer employee of any SBC company who is designated by
the Chairman as eligible to participate in the Plan.
Officer. "Officer" shall mean an individual who is designated by
the Chairman as eligible to participate in the Plan who is an
elected officer of SBC or of any SBC subsidiary (direct or
indirect).
SBC. "SBC" shall mean SBC Communications Inc.
SBC Shares. "SBC Shares" shall mean shares of SBC common stock.
3. Eligibility. Each Eligible Employee shall be eligible to participate in
the Salary and Incentive Award Deferral Plan (the "Plan").
4. Participation.
(a) Prior to the beginning of any calendar year, an Eligible Employee
may elect to participate in the Plan by directing that up to 50%
of his or her Base Salary and/or all or part of his or her
short-term and/or long-term awards under the Short Term Incentive
Plan and/or under the Senior Management Long Term Incentive Plan
and/or its successor plan, the 1996 Stock and Incentive Plan,
which would otherwise be paid currently to the employee in such
calendar year, shall be credited to a deferred account subject to
the terms of the Plan. In no event, however, shall the part of
Salary or of any award credited to the Plan during any calendar
year be less than $1,000 (which in the case of an award shall be
based on valuation at the time the award would otherwise be
paid). Any Base Salary deferral hereunder is conditioned upon a
30% Base Salary deferral election in the Stock Savings Plan.
(b) Such an election to participate in the Plan shall be in the form of
a document executed by the employee and filed with SBC. An election
related to Salary or awards otherwise payable currently in any
calendar year shall become irrevocable on the last day prior to the
beginning of such calendar year. A new election to participate in
the Plan shall be made annually.
5. Deferred Accounts.
(a) Deferred amounts related to Salary or awards which would
otherwise have been distributed to the Eligible Employee in cash
shall be credited to the employee's account and shall bear
interest at the applicable Declared Rate on the balance from
month-to-month in such account. The interest will be credited
monthly to the account at one-twelfth of the annual Declared Rate
for that calendar year compounded quarterly. The Declared Rate
for each calendar year will be determined by the Senior Vice
President-Human Resources, with the concurrence of the Senior
Vice President, Treasurer and Chief Financial Officer, and will
be announced on or before January 1 of the applicable calendar
year. However, in no event will the Declared Rate for any
calendar year be less than the Moody's Corporate Bond Yield
Average-Monthly Average Corporates as published by Moody's
Investor's Service, Inc. (or any successor thereto for the month
of September before the calendar year in question, or, if such
yield is no longer published, a substantially similar average
selected by the Senior Vice President-Human Resources).
In addition, if the employee's account under the Bell System Senior
Management Incentive Award Deferral Plan ("Predecessor Plan") was
transferred to an account under this Plan as of January 1, 1984, the
effective date of this Plan, then the employee's account under this
Plan shall be credited as of such date with the amount credited to
the employee's account under the Predecessor Plan as of December 31,
1983, and such amount shall bear interest in accordance with the
terms of this Plan.
(b) Deferred amounts related to awards which would otherwise have
been distributed in SBC hares shall be credited to the employee's
account as deferred SBC Shares. The employee's account shall
also be credited on each dividend payment date for SBC Shares
with an amount equivalent to the dividend payable on the number
of SBC Shares equal to the number of deferred SBC Shares in the
employee's account on the record date for such dividend. Such
amount shall then be converted to a number of additional deferred
SBC shares determined by dividing such amount by the price of SBC
Shares, as determined in the following sentence. The price of
SBC Shares related to any dividend payment date shall be the
average of the closing prices of SBC Shares on the New York Stock
Exchange ("NYSE") for the period of five trading days ending on
such dividend payment date, or the period of five trading days
immediately preceding such dividend payment date if the NYSE is
closed on the dividend payment date.
(c) In the event of any SBC common stock dividend or split occurring
after January 1, 1987, employees' accounts will automatically be
credited with additional SBC Shares necessary to reflect such
stock dividend or split. In the event of any other change in
outstanding SBC common stock by reason of any recapitalization,
merger, consolidation, combination or exchange of shares or other
similar corporate change, the Board of Directors shall make such
adjustments, if any, that it deems appropriate in the number of
deferred SBC Shares then credited to employees' accounts. Any
and all such adjustments shall be conclusive and binding upon all
parties concerned.
6. Distribution.
(a) At the time an Eligible Employee makes an election to participate
in the Plan, the employee shall also make an election with
respect to the distribution (during the employee's lifetime or in
the event of the employee's death) of the amounts to be credited
to the employee's deferred account during the upcoming calendar
year. Such an election related to awards otherwise payable
currently in any calendar year shall become irrevocable on the
last day prior to the beginning of such calendar year. Amounts
credited as cash plus accumulated interest shall be distributed
in cash; amounts credited as deferred SBC Shares shall be
distributed in the form of an equal number of SBC Shares;
provided, however, any fractional shares shall be credited as
federal tax withholding.
(b) An employee may elect to receive the amounts credited to the
employee's account with respect to Salary or with respect to each
award to be paid in the upcoming calendar year in one payment or in
some other number of approximately equal annual installments (not
exceeding 15). The first installment (or the single payment if the
employee has so elected) shall be paid within 60 days following the
date specified in such election.
(c) Notwithstanding an election pursuant to Paragraph (b) of this
Section 6, all amounts then credited to the employee's accounts
shall be paid immediately in a single payment if an employee is
discharged for cause by his or her employing company, or if an
employee otherwise ceases to be employed by his or her employing
company and engages in competition with SBC or any direct or
indirect subsidiary thereof or with any business with which a
subsidiary of SBC or an affiliated company has a substantial
interest (collectively referred to herein as an "Employer
Business"), or becomes employed by a governmental agency having
jurisdiction over the activities of SBC or any of its
subsidiaries. For purposes hereof, engaging in competition with
any Employer business shall mean engaging by the employee in any
business or activity in the same geographical market where the
same or substantially similar business or activity is being
carried on as an Employer business. Such term shall not include
owning a nonsubstantial publicly traded interest as a shareholder
in a business that competes with an Employer business. However,
engaging in competition with an Employer business shall include
representing or providing consulting services to, or being an
employee of, any person or entity that is engaged in competition
with any Employer business or that takes a position adverse to
any Employer business. Further, engaging in competition with an
Employer business would result if the employee either engages
directly in competitive activity or in any capacity in any
location becomes employed by, associated with, or renders service
to any company, or parent or affiliate thereof, or any subsidiary
of any of them, if any of them is engaged in competition with an
Employer business, regardless of the position or duties the
employee takes and regardless of whether or not the employing
company, or the company that the employee becomes associated with
or renders service to, is itself engaged in direct competition
with an Employer business.
(d) An employee may designate pursuant to the SBC Rules for Employee
Beneficiary Designations as may hereafter be amended from time to
time ("Rules") that, in the event the employee should die before
full payment of all amounts credited to the employee's accounts,
the balance of all deferred amounts shall be distributed in one
payment or in some other number of approximately equal annual
installments (not exceeding 5) to the beneficiary or
beneficiaries designated in writing by the employee. If no
designation has been made or if all designated beneficiaries
predecease the employee or die prior to complete distribution of
all of the employee's amounts hereunder, then the balance of such
amounts be shall be distributed according to the Rules. The
first installment (or single payment if the employee has so
elected) shall be paid within 60 days following the month of
death.
(e) Installments subsequent to the first installment to the employee,
or to a beneficiary, shall be paid on the date established in
6(b) or 6(d) in each succeeding calendar year until the entire
amount credited to the employee's deferred account shall have
been paid. Deferred amounts held pending distribution shall
continue to be credited with interest or additional deferred SBC
Shares, as applicable, determined in accordance with Section 5(a)
or 5(b).
(f) The obligation to make distribution of deferred amounts credited
to an employee's account during any calendar year, plus the
additional amounts credited on such deferred amounts pursuant to
Section 5(a) or 5(b), shall be borne by SBC or the applicable
employing company which otherwise would have paid the related
award currently. However, the obligation to make distributions
with respect to deferred amounts which are related to amounts
credited to an employee's account as of the effective date of the
Plan pursuant to Section 5(a), and with respect to which no SBC
company would otherwise have paid the related award currently,
shall be borne by the company which employed the employee on the
effective date of the Plan.
(g) For the purpose of this Section 6, an election described in
Paragraph (a) or a beneficiary designation described in Paragraph
(d) made under the comparable provisions of the Predecessor Plan
shall be considered as an election or beneficiary designation,
respectively, made under this Section 6.
(h) Notwithstanding the previous provisions of this Section 6, at any
time during the calendar year prior to the calendar year during
which an award deferred under the provisions of the Plan is
scheduled for distribution, a participant my change his or her
previous election(s) applicable to such award to further defer
the commencement of distribution of such award to a subsequent
calendar year, and in such case to also change the number of
installments applicable to the distribution of the award.
Amounts with respect to which the participant's election(s) are
modified in accordance with the provisions of this Section 6(h)
shall continue to be subject to all provisions of this Plan
including further distribution modifications in accordance with
the provisions of this Section 6(h).
7. Amendment and Termination. This Plan may be modified or terminated at any
time in accordance with the provision of SBC's Schedule of Authorizations,
but such changes or termination shall not adversely affect the rights of
any Eligible Employee, without his or her consent, to any benefit under
the Plan to which such employee may have previously become entitled prior
to the effective date of such change or termination.
8. Miscellaneous.
(a) Unsecured General Creditor. The amounts deferred hereunder shall be
held in the general funds of SBC. SBC shall not be required to
reserve, or otherwise set aside, funds for the payment of such
amounts.
(b) Non-Assignability. The rights of an employee to any deferred amounts
plus the additional amounts credited pursuant to Section 5(a), 5(b)
and 5(c) shall not be subject to assignment by the employee.
(c) Administration. The Committee shall be the sole administrator of
--------------
the Plan and will administer the Plan, interpret, construe and
apply its provisions in accordance with its terms. The Committee
shall further establish, adopt or revise such rules and
regulations as it may deem necessary or advisable for the
administration of the Plan. All decisions of the Committee shall
be binding unless the Board of Directors should determine
otherwise.
EXHIBIT 10i
LOGO
SBC Communications Inc.
FINANCIAL COUNSELING PROGRAM
Effective: January 1, 1984
Revisions Effective: November 21, 1997
<PAGE>
FINANCIAL COUNSELING PROGRAM
TABLE OF CONTENTS
Section Subject Page
1. Purpose.........................................1
2. Definitions.....................................1
3. Eligibility.....................................2
4. Services........................................2
5. Conditions....................................2&3
6. Enrollment and Billing........................3&4
7. Non-competition.................................4
8. Amendment and Termination.......................4
<PAGE>
FINANCIAL COUNSELING PROGRAM
1. Purpose. The purpose of this Program is to provide Eligible Employees with
financial counseling services (including tax preparation and estate planning
services).
2. Definitions. For purposes of this Plan, the following words and phrases shall
have the meanings indicated, unless the context clearly indicates otherwise:
Chairman. "Chairman" shall mean the Chairman of the Board of SBC
Communications Inc.
Eligible Employee. "Eligible Employee" shall mean an Officer or a
non-Officer employee of any SBC company who is designated by the
Chairman as eligible to participate in the Plan.
Officer. "Officer" shall mean an individual who is designated by the
Chairman as eligible to participate in the Plan who is an elected
officer of SBC or of any SBC subsidiary (direct or indirect).
Retirement. "Retirement" shall mean the termination of an Eligible
Employee's employment with SBC or any of its subsidiaries, for reasons
other than death, on or after the earlier of the following dates: (1) the
date the Eligible Employee is Retirement Eligible as such term is defined
in the Supplemental Retirement Income Plan ("SRIP"); or (2) the date the
Eligible Employee has attained one of the following combinations of age
and service at termination of employment on or after April 1, 1997, except
as otherwise indicated below:
Net Credited Service Age
10 years or more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
With respect to an Eligible Employee who is granted an EMP Service Pension
under and pursuant to the provisions of the SBC Pension Benefit Plan -
Nonbargained Program ("SBCPBP") upon termination of Employment, the term
"Retirement" shall include such Eligible Employee's termination of
employment.
SBC. "SBC" shall mean SBC Communications Inc.
3. Eligibility. Each Eligible Employee shall be eligible to participate in the
Financial Counseling Program (the "Program").
4. Services. This Program provides the following (within such expense
limitations as shall be established by the Senior Vice President-Human Resources
("SVP-HR"):
Financial Counseling
(a) A personal in-depth discussion (including spouse) with a counselor to
review personal financial data to explore personal short-term and
long-range goals.
(b) Preparation of a written personal financial summary which includes
analysis and recommendations related to such things as retirement,
disability, income taxes, cash flow, debt, investment, life insurance,
estate planning and survivor's financial security.
(c) Additional planning meetings with the counselor to discuss recommendations
and to establish an implementation strategy.
(d) Annual written financial summary update with special emphasis on income
taxes, cash flow and investment and investment forecasts and
recommendations.
Tax Return Preparation
Preparation of federal, state, local income/gift tax returns.
Estate Documentation
Preparation of a will/trust/health care declaration/durable power of
attorney/other estate planning instruments for each Eligible Employee and
his/her spouse.
Any expenses exceeding the limitations established by the SVP-HR shall be the
responsibility of and shall be paid by the Eligible Employee incurring such
expenses.
5. Conditions. The following shall apply with respect to the services provided
under this Program:
(a) The Program shall not pay for any services that are attributable to the
existence of any outside business in which either the Eligible Employee or
his or her spouse has an active financial interest or management interest.
(b) Financial counseling service will be provided until one year after the
Retirement or death of an active non-Officer Eligible Employee,
whichever occurs earlier. An Eligible Employee retiring on or before
December 31, 1998 as an Officer will receive this service until one
year following his or her death. An Eligible Employee retiring after
December 31, 1998 as an Officer will receive this service until five
years following Retirement or one year after death, whichever occurs
earlier. The Chairman, any Officer who is a Direct Reporting Officer
as defined in SBC's Schedule of Authorizations, as well as any other
Officer who is designated by the Chairman, will receive this service
until one year following his or her death.
(c) If an Eligible Employee desires specific portfolio management, a private
arrangement must be established at the Eligible Employee's own expense.
(d) Financial counseling services, tax return preparation and estate
documentation services will be considered compensation. SBC will compute a
tax "gross up" which will be paid to offset income tax liabilities
incurred as a result of receiving compensation under this Program.
(e) Any Eligible Employee may at any time drop out of the financial counseling
services by writing the Senior Vice President-Human Resources.
NOTE: Information furnished by the participant to the counselor will be
completely confidential. Counselor will not furnish SBC nor anyone else (other
than those employed or retained by the counselor to perform its duties) with any
information as to personal financial affairs, objectives or private opinions of
the participant.
6. Enrollment and Billing.
Financial Counseling
To receive financial counseling services, the Eligible Employee must select his
or her chosen financial counselor from a list of financial counselors as
approved by the SVP-HR. Financial Counselors will bill SBC directly for services
rendered to Eligible Employees.
Tax Return Preparation
Eligible Employees may select any tax return preparer. An Eligible Employee who
selects a different tax return preparer than his or her financial counselor will
be billed directly by such tax return preparer for services rendered. Such
Eligible Employees should initial bills received as correct and forward them to
the Executive Compensation Group for payment up to the prescribed limit.
Estate Documentation
Eligible Employees in selected geographical localities with significant numbers
of Eligible Employees (e.g., San Antonio, Dallas, San Francisco) must use a
provider from a list of providers approved by the SBC Legal Department and
maintained by the Executive Compensation Group. Eligible Employees in other
areas may select an attorney of their choosing. The SBC Legal Department and the
Executive Compensation Group will help identify an attorney if the Eligible
Employee requests assistance. Eligible Employees will be billed by the provider
for services rendered to them. Eligible Employees should initial bills received
as correct and forward them to the Executive Compensation Group for payment up
to the prescribed limit.
7. Non-competition. Notwithstanding any other provision of this Program, no
services shall be provided under this Program with respect to any Eligible
Employee who shall, without the written consent of SBC, and while employed by
SBC or any subsidiary thereof, or within three (3) years after termination of
employment from SBC or any subsidiary thereof, engage in competition with SBC or
any subsidiary thereof or with any business with which a subsidiary of SBC or an
affiliated company has a substantial interest (collectively referred to herein
as "Employer business"). For purposes of this Program, engaging in competition
with any Employer business shall mean engaging by Eligible Employee in any
business or activity in the same geographical market where the same or
substantially similar business or activity is being carried on as an Employer
business. Such term shall not include owning a nonsubstantial publicly traded
interest as a shareholder in a business that competes with an Employer business.
However, engaging in competition with an Employer business shall include
representing or providing consulting services to, or being an employee of, any
person or entity that is engaged in competition with any Employer business or
that takes a position adverse to any Employer business. Accordingly, services
shall not be provided under this Program if, within the time period and without
the written consent specified, Eligible Employee either engages directly in
competitive activity or in any capacity in any location becomes employed by,
associated with, or renders service to any company, or parent or affiliate
thereof, or any subsidiary of any of them, if any of them is engaged in
competition with an Employer business, regardless of the position or duties the
Eligible Employee takes and regardless of whether or not the employing company,
or SBC that Eligible Employee becomes associated with or renders service to, is
itself engaged in direct competition with an Employer business.
8. Amendments and Termination. This Program may be modified or
terminated at any time in accordance with the provisions of SBC's Schedule of
Authorizations.
EXHIBIT 10j
LOGO
SBC Communications Inc.
SUPPLEMENTAL HEALTH PLAN
Effective: January 1, 1987
Revisions Effective: November 21, 1997
<PAGE>
SUPPLEMENTAL HEALTH PLAN
TABLE OF CONTENTS
Section Subject Page
1. Purpose ........................................ 1
2. Definitions..................................... 1
3. Eligibility .................................... 2
4. Coverage........................................2&3
5. Costs........................................... 3
6. Non-Competition ................................3&4
7. Administration.................................. 4
8. Amendments and Termination ..................... 4
<PAGE>
SUPPLEMENTAL HEALTH PLAN
1. Purpose. The Supplemental Health Plan ("Plan") provides Eligible Employees
and their eligible dependents with supplemental medical, dental and vision
benefits.
2. Definitions. For purposes of this Plan, the following words and phrases shall
have the meanings indicated, unless the context clearly indicates otherwise:
Chairman. "Chairman" shall mean the Chairman of the Board of SBC Communications
Inc.
Committee. "Committee" shall mean the Human Resources Committee of the Board of
SBC Communications Inc.
Eligible Employee. "Eligible Employee" shall mean an Officer.
Officer. "Officer" shall mean an individual who is designated by the Chairman as
eligible to participate in the Plan who is an elected officer of SBC or of
any SBC subsidiary (direct or indirect).
Retirement. "Retirement" shall mean the termination of an Eligible
Employee's employment with SBC or any of its subsidiaries, for reasons
other than death, on or after the earlier of the following dates: (1) the
date the Eligible Employee is Retirement Eligible as such term is defined
in the SBC Supplemental Retirement Income Plan ("SRIP"); or (2) the date
the Eligible Employee has attained one of the following combinations of
age and service at termination of employment on or after April 1, 1997,
except as otherwise indicated below:
Net Credited Service Age
10 years or more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
With respect to an Eligible Employee who is granted an EMP Service Pension
under and pursuant to the provisions of the SBC Pension Benefit Plan -
Nonbargained Program ("SBCPBP") upon termination of Employment, the term
"Retirement" shall include such Eligible Employee's termination of
employment.
SBC. "SBC" shall mean SBC Communications Inc.
3. Eligibility. Each Eligible Employee shall be eligible to participate in this
Plan along with his or her eligible dependents. Eligible dependents are those
covered under the Eligible Employee's SBC company's basic managed care medical,
dental, and vision care plans ("Basic Plans").
Provisions of this Plan will continue in effect during Retirement for each
Eligible Employee who became an Eligible Employee on or after January 1, 1987
but before January 1, 1999. Dependent coverage will also continue during the
Retirement period for an Eligible Employee who became an Eligible Employee on or
after January 1, 1987 but before January 1, 1999. An Eligible Employee who
becomes an Eligible Employee after December 31, 1998 shall not be eligible
hereunder for coverage during Retirement.
Eligible Employees as of October 1, 1998 must elect to continue coverage
effective January 1, 1999 by December 31, 1998. An Eligible Employee who becomes
an Eligible Employee after October 1, 1998 shall have 90 days after becoming an
Eligible Employee to elect coverage under this Plan. Coverage will remain in
effect as long as the applicable contribution is paid by the Eligible Employee.
However, once an Eligible Employee terminates coverage he or she may not
reinstate such coverage.
4. Coverage. Subject to the limitations in this Section, this Plan provides 100%
coverage of all medical, dental and vision expenses not covered by the Eligible
Employee's Basic Plans provided such expenses would qualify as deductible
medical expenses for federal income tax purposes, whether deducted or not.
Notwithstanding any other provision of the Plan to the contrary, an employee who
first becomes an Eligible Employee mid-year and who is enrolled in SBC sponsored
medical plans other than his or her company's Basic Plans (e.g., HMO) will be
allowed to participate in the Plan for the remainder of the calendar year along
with his or her dependents who are enrolled in such other SBC sponsored Plans,
as if he or she was participating in his or her company's Basic Plans.
Thereafter, to participate in the Plan, the Eligible Employee, as well as his or
her dependents for whom coverage is desired under this Plan, must be enrolled in
the Basic Plans to have coverage hereunder. Expenses incurred by any Eligible
Employee or any of his or her eligible dependents under this Plan shall not
exceed $50,000 per year per individual. Effective January 1, 1998, expenses
incurred by any Eligible Employee and his or her eligible dependents under this
Plan shall not exceed $100,000 total per Plan year (i.e., January 1 through
December 31). Expenses covered by the Basic Plans will not be included in these
limits.
Claims will be applied against the various health plans in the following order:
(1) Medicare if participant is eligible for same,
(2) Group Health Plans,
(3) CarePlus if elected and applicable,
(4) Long Term Care Plan if elected and applicable,
(5) this Plan.
5. Costs. Except as provided below in this Section, costs and expenses incurred
in the operation and administration of this Plan will be borne by SBC; and each
subsidiary will be required to reimburse SBC for applicable costs and expenses
attributable to Eligible Employees employed by it:
Effective January 1, 1999, an Eligible Employee electing coverage under the
Plan will pay for coverage under the Plan while in active service. Such
Eligible Employee's annual contribution amount will be equal to 10% of SBC's
actual costs per Eligible Employee for the prior Plan year.
Effective with respect to a retirement occurring on or after January 1,
1999, an Eligible Employee who became an Eligible Employee before January 1,
1999 and who elects retirement coverage under the Plan will pay for coverage
under the Plan during retirement. Such Eligible Employee's annual
contribution amount during retirement will be equal to the following
percentage of SBC's actual costs per Eligible Employee for the prior Plan
year:
Age of Retiree as of Annual Contribution
December 31, 1997 Percentage
if age 55 or older 10%
if age 50 or older
but less than 55 25%
if less than age 50 50%
Coverage will remain in effect as long as the applicable contribution is paid by
the Retiree. However, once a Retiree terminates coverage he or she may not
reinstate such coverage.
6. Non-Competition. Notwithstanding any other provision of this Plan, no
coverage shall be provided under this Plan with respect to any Eligible Employee
who shall, without the written consent of SBC, and while employed by SBC or any
subsidiary thereof, or within three (3) years after termination of employment
from SBC or any subsidiary thereof, engage in competition with SBC or any
subsidiary thereof or with any business with which a subsidiary of SBC or an
affiliated company has a substantial interest (collectively referred to herein
as "Employer business"). For purposes of this Plan, engaging in competition with
any Employer business shall mean engaging by Eligible Employee in any business
or activity in the same geographical market where the same or substantially
similar business or activity is being carried on as an Employer business. Such
term shall not include owning a nonsubstantial publicly traded interest as a
shareholder in a business that competes with an Employer business. However,
engaging in competition with an Employer business shall include representing or
providing consulting services to, or being an employee of, any person or entity
that is engaged in competition with any Employer business or that takes a
position adverse to any Employer business. Accordingly, coverage shall not be
provided under this Plan if, within the time period and without the written
consent specified, Eligible Employee either engages directly in competitive
activity or in any capacity in any location becomes employed by, associated
with, or renders service to any company, or parent or affiliate thereof, or any
subsidiary of any of them, if any of them is engaged in competition with an
Employer business, regardless of the position or duties the Eligible Employee
takes and regardless of whether or not the employing company, or the company
that Eligible Employee becomes associated with or renders service to, is itself
engaged in direct competition with an Employer business.
7. Administration. Subject to the terms of the Plan, the Chairman shall
establish such rules as are deemed necessary for the proper administration of
the Plan. SBC will compute a "gross-up" allowance which will be paid to an
Eligible Employee to offset income tax liabilities incurred as a result of
receiving benefits under this Plan.
8. Amendments and Termination. This Plan may be modified or terminated at any
time in accordance with the provisions of SBC's Schedule of Authorizations.
<PAGE>
SUPPLEMENTAL
HEALTH PLAN
ADMINISTRATIVE GUIDELINES
TABLE OF CONTENTS
Section Subject Page
1. General...............................................1
2. Coverage Considerations...............................1&2
3. Enrollment............................................2
4. Eligible Charges......................................2&3
5. Annual Limits.........................................3
6. Claims Processing.....................................3&4
7. I. D. Cards...........................................4
8. Prescriptions.........................................5
9. Billing...............................................5
10. Reports................................................5
11. Accruals...............................................5
12. Taxes..................................................5
......
Approved:
- ---------------------------------- --------------
Chairman & Chief Executive Officer Date
......
<PAGE>
SUPPLEMENTAL
HEALTH PLAN
ADMINISTRATIVE GUIDELINES
1. General. The purpose of these guidelines is to list the procedures to
be followed in administering the Supplemental Health Plan ("SHP").
The Senior Vice President - Human Resources will establish internal procedures
and group insurance policies with health carrier(s) as appropriate to carry out
the provisions of the Plan.
2. Coverage Considerations.
Eligible Employees:
Coverage is provided only for an Eligible Employee covered by a subsidiary's
basic medical plan ("basic plan"), except as otherwise provided for in Section 4
of the Plan.
Coverage continues during periods of disability and during retirement in certain
circumstances as described in the Plan. Coverage during such periods shall be
the same as provided to active Eligible Employees.
Coverage for a new Eligible Employee is effective the first day of the month in
which the employee is declared to be eligible to participate in the Plan by the
Chairman.
Coverage will cease on the last day of the month in which one of the following
conditions exist:
(a) Eligible Employee is no longer a participant in the Basic Plan
(b) termination of Eligible Employee from active service for reasons
other than disability or the retirement of an Eligible Employee who
became an Eligible Employee before January 1, 1999
(c) death of Eligible Employee (unless surviving dependents continue
coverage under basic plan)
(d) demotion of Eligible Employee so as to no longer be eligible to
participate in the Plan
(e) transfer to a subsidiary that will not bear expenses for the
Eligible Employee to participate in the Plan
(f) Eligible Employee engages in competitive activity
(g) discontinuance of the Plan by SBC or a subsidiary
Dependents:
Coverage is provided for dependents of a covered Eligible Employee if the
dependents are covered by the basic plan.
If coverage for a dependent ceases under the basic plan, coverage under this
Plan will cease with the same effective date.
If coverage for the Eligible Employee under this Plan ceases for any reason,
dependent coverage will cease with the same effective date except where employee
coverage ceases due to death of the Eligible Employee, the Plan will continue in
effect for surviving dependents as long as the dependents are covered under the
basic plan (through automatic coverage or through payment of basic premiums) and
are paying any applicable premiums under this Plan.
3. Enrollment. Upon approval as an Eligible Employee, enrollment in the basic
plan and payment of any applicable premium under this Plan, the Eligible
Employee and current dependents shall be covered under the Plan. The Executive
Compensation Administration (ECA) contact will forward a portfolio to the
Eligible Employee including the following:
_ Blank claim forms (5 to 10 copies)
_ Blue return envelopes (5 to 10 )
_ Filing instructions
_ I. D. Cards with Eligible Employee's name imprinted (for use for
Eligible Employee, spouse, and eligible dependents)
As a matter of convenience for the Eligible Employee, the ECA contact will
advise the appropriate payroll office regarding withholding of basic coverage
premiums for class II or sponsored dependents not already enrolled in the basic
plan. The premium paid for dependents is at the rate specified for basic
coverage only. There is no additional premium to be paid for SHP coverage for
the dependent. Withholding of dependent basic premiums for retired Eligible
Employees, where applicable, shall be handled in the same manner as other
withholding arrangements for retired executives.
Each month, the ECA contact will provide the SHP carrier and subsidiary benefit
administration groups with a list of Eligible Employees currently enrolled in
the Plan. The ECA contact will provide updated dependent information to the
carrier whenever new or revised Dependent Enrollment Forms are received from
Eligible Employees.
4. Eligible Charges. Charges for medical care will be eligible under this Plan
if they are also eligible medical expenses as defined in the Internal Revenue
Code. In general, medical expenses are defined to include any amounts paid for
the diagnosis, cure, mitigation, treatment or prevention of disease or for the
purpose of affecting any structure or function of the body, and transportation
for and essential to medical care. Amounts paid for illegal operations or
treatments are not eligible medical expenses. In addition, expenses incurred
which are merely beneficial to the general health of an individual are also not
considered eligible medical expenses unless they are for the primary purpose of
curing a particular disease or ailment and prescribed by a doctor.
Eligible Employees are encouraged to use basic plan cost management features,
including pre-certification, continued stay, second surgical opinion and
designation of Primary Care Physician. Use of these features is optional for
Eligible Employees.
5. Annual Limits. The annual limits for charges which will be paid under the
Plan are specified in the Plan. Expenses incurred under provisions of basic
medical, dental and vision plans are not counted against the Plan's limits. The
Plan's limits apply to the following eligible charges:
a) Medical expenses not paid under a basic medical expense plan
(deductibles, co-pay amounts, excluded charges, etc., but not
premiums to enroll dependents in the basic plan); plus
b) Dental expenses not paid under basic dental plan (deductibles,
co-pay amounts, excluded charges etc., but not premiums to enroll
dependents in the basic plan); plus
c) All vision expenses not covered by basic vision plan, but not
premiums to enroll dependents in the basic plan
When an Eligible Employee or dependent or the Eligible Employee's family
exhausts annual coverage, the Eligible Employee will be notified by the carrier.
6. Claims Processing. Eligible Employees or their Providers (Doctors, Hospitals,
etc.) should submit all basic medical, dental and vision plan and SHP claims to
the SHP carrier (Prudential). In no case should claims be submitted for
processing under the procedures of the basic medical, dental and vision plans.
Prudential will coordinate processing for both basic and SHP claims to reduce
administrative efforts for Eligible Employees. Retired Eligible Employees who
are eligible for coverage under the Plan and who are eligible for Medicare
should file with Medicare first. See Medicare Section below.
To submit a claim, Eligible Employees or their Providers should use a claim form
(see Attachment 1) and one of the blue envelopes provided in the enrollment
portfolio. Documentation of service provided should be attached to the claim
form. Additional forms and envelopes are available from the carrier.
The carrier will receive completed forms, verify participation and make payment
to the Eligible Employee or to the Provider as appropriate. The Explanation of
Benefits statement will be forwarded to the Eligible Employee when payments are
made.
Medical and Dental Claims. The carrier will allocate claim charges to either
basic medical or dental plan coverage, SHP coverage or non-covered charges. The
Eligible Employee or the Eligible Employee's Provider will be reimbursed for all
charges except those not eligible under either a basic medical or dental plan or
SHP. The carrier will use the separation of charges between plans to produce
reports and to track against annual limits.
Vision Claims. The carrier will allocate claim charges to either basic vision
plan coverage, SHP coverage or non-covered charges. The Eligible Employee or the
Eligible Employee's Provider will be reimbursed for all charges except those not
eligible under either a basic vision plan or SHP. The carrier will use the
separation of charges between plans to produce reports and to track against
annual limits. Eligible Employees should not submit vision claims to carriers
other than the SHP carrier.
Medicare. Any retired Eligible Employee eligible for coverage under the Plan or
his or her dependents any of whom are eligible for Medicare shall file claims
with Medicare first. Expenses not reimbursed by Medicare should then be filed
with Prudential using the Supplemental Health Plan Claim Form.
Coordination by Administrators. The ECA contact will instruct claims
administrators for basic plans (vision, dental, medical) to forward all Eligible
Employee claims to the SHP carrier for processing.
Release of Information. If requested by a Provider, it will be necessary for the
Eligible Employee to sign a form to authorize the carrier to obtain additional
information from a Provider. In those cases, the carrier will forward an
information release form directly to the Eligible Employee.
7. I. D. Cards. Each enrollment portfolio includes I.D. cards which should be
signed on the back by the Eligible Employee except for the Eligible Employee's
spouse's card which should be signed by the spouse. The dependent's name will be
shown on the dependent's card.
Blank cards can be obtained from the carrier and imprinted locally by the ECA
Group.
Each card will contain a carrier telephone number dedicated to the SHP. This
number is also on the claim forms.
8. Prescriptions. Participants in the SHP should use the Mail Service
Prescription Drug Program or purchase prescriptions from a pharmacy, as
appropriate. The Eligible Employee should attach his/her receipt for any amount
not covered by the basic Plan to a claim form, and forward to the carrier for
full reimbursement. Only prescription medicines are eligible for reimbursement.
Over-the-counter medicines (cold tablets, aspirin, etc.) and hygienic supplies
(contact lens solution, eye drops, etc.) are not covered under the plan.
9. Billing. The carrier will issue insurance premium bills at the beginning of
each quarter to the following SBC entities:
_ SBC ECA Group (for corporate staff Eligible Employees)
_ Each subsidiary's Human Resources/Personal Administration Group
(for subsidiary Eligible Employees).
Quarterly payments are due to the carrier by the end of the first month in the
quarter.
Bills will provide sufficient detail to show the following:
_ Amounts above that allocated to basic medical, dental and vision plans
_ SHP premiums
_ Other SHP charges/credits
_ SBC code
_ State code
_ Individual bills for each Eligible Employee as requested by the
employing subsidiary
10. Reports. The carrier will issue quarterly reports to the SBC ECA contact.
These will include claim-to-premium reconciliation data for use in forecasting
end-of-year true-ups and determining whether or not accruals will be required.
11. Accruals. If claim-to premium reconciliation data indicates claims are
significantly exceeding premiums during a quarter, accruals should be considered
during the year. At the end of the year, an accrual is generally required unless
a year-end true-up bill is not expected.
12. Taxes. If receipt of coverage/benefits under this Plan results in taxable
income, an Eligible Employee's income will be grossed-up.
Exhibit 10-k
SBC Communications Inc.
Retirement Plan for Non-Employee Directors
Effective February 1, 1986
Preamble
The Retirement Plan for Non-Employee Directors (the "Retirement Plan")
provides retirement benefits to certain Directors of SBC Communications Inc.
(the "Corporation") whose right to payment hereunder is not guaranteed. All
rights, hereunder shall be governed by and construed in accordance with the laws
of Missouri.
Administration
The Retirement Plan shall be administered by the Officer of the
Corporation ("Plan Administrator") as may be designated by the Chief Executive
Officer. The Plan Administrator may delegate any or all duties hereunder to
other individuals. The Plan Administrator's decisions regarding the
interpretation and application of the Retirement Plan shall be binding on all
parties.
Eligibility
An individual who has never been employed by the Corporation or any of its
subsidiaries, who began service as a Director of the Corporation on or before
November 21, 1997, who terminates service as a Director of the Corporation on or
after February 1, 1986, and who served as a Director of the Corporation ("Board
Service") for five years or more shall be eligible to receive benefits under the
Retirement Plan (a "Participant"). For the purpose of determining eligibility
hereunder, service as a Director of Southwestern Bell Telephone Company prior to
January 1, 1984, shall be considered Board Service hereunder.
Directors of companies acquired by the Corporation, directly or
indirectly, pursuant to a merger, consolidation, acquisition or otherwise who
are appointed to the Corporation's Board pursuant to the agreement providing for
such transaction, or any amendments thereof, or any related agreements, shall
not be eligible to participate in the Retirement Plan, unless otherwise provided
by the Human Resources Committee of the Board.
Benefit Amount
Participants shall receive an annual benefit equal to 10% of the annual
retainer for Board Service (exclusive of retainers for Board committees or
meeting fees) in effect upon termination of Board Service for each complete year
of Board Service, with a maximum annual benefit of 100% of the applicable annual
retainer.
Unless a Participant terminates Board Service at or after age 70, benefits
under the Retirement Plan shall be actuarially reduced for each month the
initial payment date precedes the Participant's attaining age 70; provided,
however, that there shall be no reduction in benefits if payments commence prior
to age 70 if a Participant terminated Board Service (a) on account of a
permanent and total disability in accordance with the definition of Section
22(e)(3) of the Internal Revenue Code or any successor provision, or (b) upon
the expiration of the final term of Board Service for which the Participant was
of age to stand for election.
Manner and Term of Payments
Benefit payments shall commence on the first day of the first calendar
quarter following a Participant's termination of Board Service and shall be paid
quarterly thereafter for the longer of the life of the Participant or the
10-year period commencing on the date of the first payment and ending on the day
next preceding the tenth anniversary of such date (Life with 10-Year Certain
Benefit). If a Participant who is receiving a Life with 10-Year Certain Benefit
dies prior to the expiration of the 10-year period described above, the
Participant's Beneficiary shall be entitled to receive the remaining Life with
10-Year Certain Benefit installments which would have been paid to the
Participant had the Participant survived for the entire 10-year period. Each
benefit payment shall be one-quarter of the Participant's annual benefit net of
applicable withholding taxes if any.
If an individual with five years or more of Board Service dies while still
serving as a Director, a pre-retirement death benefit will be calculated and
paid as though the individual had retired on the date of death, except that no
actuarial reduction shall apply if the individual dies before attaining age 70.
No right or interest in the Retirement Plan or to Retirement Plan benefits
shall be assignable or transferable or shall be subject to any lien, obligation
or liability of any Participant.
Term of Retirement Plan
The Retirement Plan shall remain in effect until terminated by the SBC
Communications Inc. Board of Directors, which may amend the Retirement Plan from
time to time.
Revised: November 21, 1997
Exhibit 10-n
March , 1998
Private and Confidential
Officer Name
Officer Title
Company
Street Address
City, State, Zip Code
Re: Severance Benefits-Change in Control
Dear Officer:
SBC (the "Corporation") considers it essential to the best interests
of its stockholders to foster the continuous employment of key management
personnel of the Corporation and its subsidiaries. In this connection, the Board
of Directors of the Corporation (the "Board") has recognized that, as is the
case with many publicly held corporations, a change in control is a possibility
and that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of senior
management personnel to the detriment of the Corporation and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of
senior management (hereinafter referred to as "Officers"), including yourself,
to their assigned duties without distraction in the face of potentially
disturbing circumstances arising from the possibility of a change in control of
the Corporation, although no such change is now apparent or contemplated.
In order to induce you to remain in the employ of the Corporation or
one of its subsidiaries, as the case may be, and in consideration of your
agreement set forth in Section 2.2 hereof, the Corporation agrees that you shall
receive the severance benefits set forth in this letter agreement ("Agreement")
in the event your employment with the Corporation's family of companies (i.e.,
the tax controlled group of corporations of which the Corporation is a member)
is terminated subsequent to a "change in control of the Corporation" (as defined
in Section 2 hereof) under the circumstances described herein.
Page Two
1. Term of Agreement. This Agreement shall commence on, and the date
of this Agreement shall be, the date it is agreed to by you as shown above your
signature, and this Agreement shall continue in effect through December 31,
1998; provided, however, that commencing on January 1, 1999 and each January 1
thereafter the term of this Agreement shall automatically be extended for one
additional year unless, not later than September 30 of the preceding year, the
Corporation shall have given notice that it does not wish to extend this
Agreement; provided further however that if a change in control of the
Corporation shall have occurred during the original or any extended term of this
Agreement, this Agreement shall continue in effect for a period of twenty-four
(24) months beyond the month in which such change in control occurred; provided
further however that the term of this Agreement shall expire if your employing
subsidiary is sold or otherwise disposed of prior to a change in control of the
Corporation unless you continue in employment with the Corporation's tax
controlled group after such sale or other disposition (if your employing
subsidiary is sold or disposed of following a change in control of the
Corporation this Agreement shall continue through its original term or any
extended term, thus, requiring payment by the Corporation hereunder if the
purchaser were to actually or constructively terminate you during such term).
2. Change in Control.
2.1 No benefits shall be payable hereunder unless there shall have
been a change in control of the Corporation, as defined below. For purposes of
this Agreement, a "change in control of the Corporation" shall be deemed to have
occurred if (A) any "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Securities
Act")), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Act), directly or indirectly, of
more than 20% of the then outstanding voting stock of the Corporation; or (B)
during any period of two consecutive years (not including any period prior to
the execution of this Agreement), individuals who at the beginning of such
period constitute the Board (and any new director whose election by the Board or
whose nomination for election by the Corporation's stockholders was approved by
a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority thereof; or (C) the stockholders of the Corporation
approve a merger or consolidation
Page Three
of the Corporation with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Corporation
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 65% of the combined voting power of the voting
securities of the Corporation or such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of the Corporation's
assets.
2.2 For purposes of this Agreement a "potential change in control of
the Corporation" shall be deemed to have occurred if (A) the Corporation enters
into an agreement, the consummation of which would result in the occurrence of a
change in control of the Corporation; (B) any person (including the Corporation)
publicly announces an intention to take or to consider taking actions which if
consummated would constitute a change in control of the Corporation; or (C) the
Board adopts a resolution to the effect that, for purposes of this Agreement, a
potential change in control of the Corporation has occurred.
You agree that, subject to the terms and conditions of this Agreement,
in the event of a potential change in control of the Corporation, you will
remain in the employ of the Corporation's family of companies until the earliest
of (A) a date which is six (6) months after the occurrence of such potential
change in control of the Corporation, (B) the termination by you of your
employment by reason of Disability or Retirement as defined in Section 3.1, (C)
the occurrence of a change in control of the Corporation, or (D) the expiration
of the term of this Agreement.
3. Termination Following Change in Control.
If any of the events described in Section 2.1 hereof constituting a change in
control of the Corporation shall have occurred you shall be entitled to the
benefits provided in Section 4.3 hereof upon the subsequent termination of your
employment with the Corporation's family of companies during the term of this
Agreement unless such termination is (A) because of your death Disability (as
defined in Section 3.1) or Retirement (as defined in Section 3.1), (B) by the
Corporation or subsidiary thereof, as the case may be, for Cause (as defined in
Section 3.2) or (C) by you other than for Good Reason (as defined in Section
3.3).
Page Four
3.1 Disability; Retirement. If, as a result of your incapacity due to
physical or mental impairment, you shall have been absent from the full-time
performance of your duties with the Corporation or subsidiary thereof, as the
case may be, for twelve (12) consecutive months, and within thirty (30) days
after written notice of termination is given (which notice may be given before
the expiration of such twelve (12) month period) you shall not have returned to
the full-time performance of your duties immediately preceding the onset of the
physical or mental impairment, a similar position, or any appropriate position
which you would otherwise be capable of performing by reason of your background
and experience your employment may be terminated for "Disability".
Termination by the Corporation or subsidiary thereof, as the case may
be, or by you of your employment based on "Retirement" shall mean termination in
accordance with the Corporation's mandatory retirement age policy for Officers
or in accordance with any retirement arrangement established with your consent
with respect to you provided that termination of your employment by you for
"Good Reason" as hereinafter defined shall not under any circumstances
constitute Retirement for purposes of this Agreement.
3.2 Cause. For purposes of this Agreement, termination by the
Corporation or subsidiary thereof, as the case may be, of your employment for
"Cause" shall mean termination upon (A) the willful and continued failure by you
to substantially perform your duties with such company (other than any such
failure resulting from your incapacity due to physical or mental impairment, or
any such actual or anticipated failure after the issuance of a Notice of
Termination by you for Good Reason, as such terms are defined in Sections 3.4
and 3.3, respectively) after a written demand for substantial performance is
delivered to you by the Corporation which demand specifically identifies the
manner in which the Corporation believes that you have not substantially
performed your duties, or (B) the willful engaging by you in conduct which is
demonstrably and materially injurious to the Corporation or any subsidiary
thereof, monetarily or otherwise. For purposes of this Section, no act, or
failure to act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith and without reasonable belief that your
action or omission was in the best interest of the Corporation and its
subsidiaries. Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
you a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board called and held for such purpose (after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty of the
conduct set forth above in clauses (A) or (B) of the first sentence of this
Section 3.2 and specifying the particulars thereof in detail.
Page Five
3.3 Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a change in
control of the Corporation, of any of the following circumstances unless, in the
case of Sections 3.3.1, 3.3.4, 3.3.5, 3.3.6 or 3.3.7, such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination, as such terms are defined in Sections 3.5 and 3.4, respectively,
given in respect thereof:
3.3.1 The assignment to you of any duties inconsistent with your
status as an Officer within the Corporation's family of companies or a
substantial adverse alteration in the nature or status of your
responsibilities from those in effect immediately prior to the change in
control of the Corporation;
3.3.2 A reduction by the Corporation or subsidiary thereof, as
the case may be, in your annual base salary as in effect on the date hereof
or as the same may be increased from time to time, except for
across-the-board salary reductions similarly affecting all Officers within
the Corporation's family of companies and all managers in equivalent
positions of any person in control of the Corporation;
3.3.3 The failure by the Corporation or subsidiary thereof, as
the case may be, without your consent, to pay to you any portion of your
current compensation, or to pay to you any portion of an installment of
deferred compensation under any deferred compensation program of the
Corporation, within seven (7) days of the date such compensation is due;
3.3.4 The failure by the Corporation to continue in effect after
the change in control, each and every of the following SBC Communications
Inc. benefit plans in which you participate immediately prior to the change
in control:
Short Term Incentive Plan
Supplemental Life Insurance Plan
Supplemental Retirement Income Plan
Senior Management Deferred Compensation Plan
Page Six
Senior Management Deferred Compensation Plan of 1988
Senior Management Long Term Disability Plan
Supplemental Health Plan
1996 Stock & Incentive Plan
or any substitute plans adopted prior to the change in control, unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan; or the failure by the
Corporation or subsidiary thereof, as the case may be, to continue your
participation therein (or in such substitute or alternative plan) on a basis
not materially less favorable, both in terms of the amount of benefits
provided and the level of your participation relative to other participants,
as existed at the time of the change in control;
3.3.5 The failure by the Corporation to continue to provide you
with benefits substantially similar to those enjoyed by you under the
Corporation's pension, life insurance, medical health and accident, and
disability plans in which you were participating at the time of the change
in control of the Corporation; the taking of any action by the Corporation
which would directly or indirectly materially reduce any of such benefits or
deprive you of any material fringe benefit enjoyed by you at the time of the
change in control of the Corporation; or the failure by the Corporation to
provide you with the number of paid vacation days to which you are entitled
on the basis of your duration of service with the Corporation or subsidiary
thereof, as the case may be, in accordance with such company's normal
vacation policy in effect at the time of the change in control of the
Corporation;
3.3.6 The failure of the Corporation to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement,
as contemplated in Section 5 hereof; or
3.3.7 Any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
Section 3.4 below (and if, applicable, the requirements of Section 3.2
above); for purposes of this Agreement, no such purported termination shall
be effective.
Page Seven
Your right to terminate your employment for Good Reason shall
not be affected by your incapacity due to physical or mental impairment.
Your continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason hereunder.
3.4 Notice of Termination. Any purported termination of your
employment by the Corporation or subsidiary thereof, as the case may be, or by
you shall be communicated by written Notice of Termination to the other party
hereto in accordance with Section 6 hereof. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
3.5 Date of Termination, Etc. "Date of Termination" shall mean (A) if
your employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such thirty (30) day period), or (B) if your
employment is terminated pursuant to Section 3.2 or 3.3 above or for any other
reason (other than Disability), the date specified in the Notice of Termination
(which, in the case of a termination pursuant to Section 3.2 above shall not be
less than thirty (30) days, and in the case of a termination pursuant to Section
3.3 above shall not be less than fifteen (15) nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given); provided that
if within fifteen (15) days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of Termination
shall be the date on which the dispute is finally resolved either by mutual
written agreement of the parties, or by a final judgment, order or decree of a
court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); provided further that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. During the pendency of any such dispute, the Corporation or
subsidiary thereof, as the case may be, will continue to pay you your full
compensation in effect when the notice giving rise to the dispute was given
Page Eight
(including, but not limited to, base salary) and continue you as a participant
in all compensation, benefit and insurance plans in which you were participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
4. Compensation Upon Termination. Following a change in control of the
Corporation, as defined by Section 2.1, your compensation and entitlement to
benefits under this Agreement upon your inability or failure to perform your
duties and/or your termination shall be as follows:
4.1 During any period that you fail to perform your full-time duties
with the Corporation or subsidiary thereof, as the case may be, as a result of
incapacity due to physical or mental impairment, or in the event your employment
shall be terminated by the Corporation or subsidiary thereof, as the case may
be, or by you for Retirement, or by reason of your death, your benefits shall be
determined under the Corporation's retirement, insurance and other compensation
programs then in effect in accordance with the terms of such programs, and the
Corporation and its subsidiaries shall have no further obligations to you under
this Agreement.
4.2 If your employment shall be terminated by the Corporation or
subsidiary thereof, as the case may be, for Cause or by you other than for Good
Reason, Disability, death or Retirement, the Corporation or subsidiary thereof,
as the case may be, shall pay you your full base salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given,
plus all other amounts to which you are entitled under any compensation plan of
the Corporation or subsidiary thereof, as the case may be, at the time such
payments are due, and the Corporation and its subsidiaries shall have no further
obligations to you under this Agreement.
4.3 If your employment by the Corporation or subsidiary
thereof, as the
case may be, shall be terminated (A) by the Corporation or subsidiary thereof,
as the case may be, other than for Cause, Retirement or Disability or (B) by you
for Good Reason, then you shall be entitled to the benefits provided below:
Page Nine
4.3.1 The Corporation shall pay you your full base salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are entitled under
any compensation plan of the Corporation or subsidiary thereof, as the case
may be, in effect immediately prior to the change in control of the
Corporation, at the time such payments are due. For purposes of determining
the amount to which you are entitled under the Financial Counseling Program,
you shall be regarded as having retired with entitlement to an immediate
service pension under the Pension Benefit Plan as of your Date of
Termination.
4.3.2 In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Corporation shall pay as
severance pay to you a lump sum severance payment ("Severance Payment")
equal to three times [or two times, as the original agreement requires] the
sum of the following amounts prior to any deferral thereof: (a) your annual
base salary in effect immediately prior to the occurrence of the
circumstance giving rise to the Notice of Termination given in respect
thereof, (b) the amount paid to you pursuant to the Short Term Incentive
Plan or as a Key Executive Officer Short Term Award in the year in which the
Date of Termination occurs (or if no amount has been paid to you pursuant to
such Plan in the year in which the Date of Termination occurs, the amount
paid to you pursuant to such Plan in the year preceding that in which the
Date of Termination occurs), and (c) the cash value of your target award of
performance shares granted under the 1996 Stock and Incentive Plan (used as
the basis for determining the number of performance shares), as approved by
the Board of Directors, for the performance cycle under such Plan that on
the Date of Termination has the most recent commencement date.
4.3.3 In the event you are required to pay excise tax under
Section 4999 of the Internal Revenue Code as a result of payments under such
Severance Agreement or awards under the 1996 Stock and Incentive Plan, then
the Corporation shall pay you an amount equal to the excise tax and all
Federal and applicable state taxes resulting from payment of the excise tax,
and all resulting taxes upon taxes.
Page Ten
4.3.4 The payment provided for in Section 4.3.2, above, shall be
made not later than the fifth day following the Date of Termination,
provided, however, that if the amount of such payment cannot be finally
determined on or before such day, the Corporation shall pay to you on such
day an estimate, as determined in good faith by the Corporation of the
minimum amount of such payment and shall pay the remainder of such payment
(together with interest at the rate provided in section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later
than the thirtieth day after the Date of Termination
In the event that the amount of the estimated payment exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Corporation to you, payable on the fifth day after
demand by the Corporation (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code).
4.3.5 The Corporation also shall pay to you all legal fees and
expenses incurred by you as a result of such termination (including all such
fees and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit provided
by this Agreement or in connection with any tax audit or proceeding to the
extent attributable to the application of section 4999 of the Code to any
payment or benefit provided hereunder). Such payments shall be made no later
than the thirtieth day after the Date of Termination, or within thirty (30)
days after your request for payment accompanied with such evidence of fees
and expenses incurred as the Corporation reasonably may require.
4.3.6 You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in
this Section 4 be reduced by any compensation earned by you as the result of
employment by another employer, by retirement benefits, by offset against
any amount claimed to be owed by you to the Corporation or any subsidiary
thereof, or otherwise.
Page Eleven
4.3.7 If you are not otherwise entitled to such benefits at no
cost to you pursuant to the terms of such plans, for a thirty-six month
period from your Date of Termination or until December 31 of the year in
which you reach age sixty-five (65), whichever is the shorter period, the
Corporation shall arrange to provide you with life health and dental
benefits (including dependent coverage) substantially similar to those that
you were receiving immediately prior to your Date of Termination, including
Supplemental Health Plan benefits. Such benefits shall be provided at no
cost to you. Notwithstanding the foregoing, the Company shall not provide
any benefit to you pursuant to this Section 4.3.7 if an equivalent benefit
is actually received by you during the thirty-six month period following
your Date of Termination and any such benefit actually received by you shall
be reported by you to the Corporation.
4.3.8 This Agreement does not abrogate any of the usual
entitlements which you have or will have, first, while a regular employee,
and subsequently, after termination, and thus you shall be entitled to
receive all benefits payable to you under each and every qualified plan,
welfare plan and any other plan or program relating to benefits and deriving
from your employment with the Corporation's family of companies, but solely
in accordance with the terms and provisions thereof as in effect immediately
prior to the change in control of the Corporation.
5. Successors; Binding Agreement.
5.1 The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. Failure of the Corporation to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle you to compensation from the
Corporation in the same amount and on the same terms as you would be entitled to
hereunder if you terminate your employment for Good Reason following a change in
control of the Corporation, except that for purposes of implementing the
foregoing, the date on which any succession becomes effective shall be deemed
the Date of Termination. As used in this Agreement, "Corporation" shall mean the
Corporation as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
Page Twelve
5.2 This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees, and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee, or if there
is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, or to such
other address as either party may have furnished to the other in writing in
accordance herewith.
7. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto any time of any breach by the
other party hereto, of or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. All references to sections of the
Securities Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law.
The obligations of the Corporation under Section 4 shall survive the expiration
of the term of this Agreement.
8. Validity. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
Page Thirteen
9. Non-Assignability. Neither you nor any other person shall have any
right to commute sell, assign, transfer, pledge, anticipate, mortgage, or
otherwise encumber, transfer, hypothecate, or convey in advance of actual
receipt the amounts, if any, payable hereunder, or any part thereof, which are,
and all rights to which are, 5 expressly declared to be unassignable and
non-transferable. No part of the amounts payable shall, prior to actual payment
be subject to seizure or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by you or any other person, nor be
transferable by operation of law in the event of your or any other person's
bankruptcy or insolvency.
10. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
If this letter sets forth our agreement on the subject matter hereof
kindly sign and return to the Corporation the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
SBC Communications Inc.
By:_____________________________________
Senior Vice President-Human Resources
Agreed to as of the _____day
of __________________1998
- -------------------------------
Officer Typed Name
<PAGE>
Officer Address:
Dear Officer:
You previously entered into a change-in-control/severance agreement with SBC
Communications Inc. ("SBC" or the "Corporation") pursuant to resolutions to the
Board of Directors of SBC, adopted on January 27, 1989 (the "Severance
Agreement"). Subsequently, on March 28, 1997, the Human Resources Committee
adopted the enclosed resolution to the effect that new benefit plans adopted by
the Corporation would be considered replacements for certain plans described in
the Severance Agreement.
The Board of Directors has authorized the amendment of the Severance
Agreement to make certain updating amendments described below. The Severance
Agreement, as amended by this letter, would constitute the entire agreement
between you and the Corporation.
The changes to the Severance Agreement are:
1. Any references to Southwestern Bell Corporation would now be to SBC
Communications Inc. Any references to the Corporation as your sole employer
[certain agreements only], would now refer to the Corporation or one of its
subsidiaries as your employer.
2. The reference in Section 3.3.4 to the Southwestern Bell
Corporation Senior Management Long Term Incentive Plan would be
replaced by the 1996 Stock and Incentive Plan. The references
in the Severance Agreement to: (a) Southwestern Bell
Corporation Senior Management Supplemental Retirement Income
Plan, (b) Southwestern Bell Corporation Senior Management Long
Term Disability Plan, (c) Southwestern Bell Corporation Senior
Management Deferred Compensation Plan, (d) Southwestern Bell
Corporation Senior Management Deferred Compensation Plan of
1988, (e) Southwestern Bell Corporation Senior Management
Executive Health Plan, (f) Southwestern Bell Corporation Senior
Management Financial Counseling Program, and (g) Southwestern
Bell Corporation Management Pension Plan shall refer to the
following plans of SBC, respectively: (a) Supplemental
Retirement Income Plan, (b) Senior Management Long Term
Disability Plan, (c) Senior Management Deferred Compensation
Plan, (d) Senior Management Deferred Compensation Plan of 1988,
(e) Supplemental Health Plan, (f) Financial Counseling Program,
and (g) Pension Benefit Plan.
3. The last provision of Section 1, referring to the Severance Agreement not
extending beyond the last day of the month you attain age 65, is deleted.
4. Section 4.3.2 is amended in its entirety to read as follows:
In lieu of any further salary payments to you for periods subsequent
to the Date of Termination, the Corporation shall pay as severance pay to
you a lump sum severance payment ("Severance Payment") equal to three times
[or two times, as the original agreement requires] the sum of the following
amounts prior to any deferral thereof: (a) your annual base salary in effect
immediately prior to the occurrence of the circumstance giving rise to the
Notice of Termination given in respect thereof, (b) the amount paid to you
pursuant to the Short Term Incentive Plan or as a Key Executive Officer
Short Term Award in the year in which the Date of Termination occurs (or if
no amount has been paid to you pursuant to such Plan in the year in which
the Date of Termination occurs, the amount paid to you pursuant to such Plan
in the year preceding that in which the Date of Termination occurs), and (c)
the cash value of your target award of performance shares granted under the
1996 Stock and Incentive Plan (used as the basis for determining the number
of performance shares), as approved by the Board of Directors, for the
performance cycle under such Plan that on the Date of Termination has the
most recent commencement date.
5. The first sentence of Section 3.3 [only for those agreements that originally
had a reference to a ninety (90) day period for the officer to determine in
"good faith" if he could effectively discharge his duties] shall be amended
to read as follows:
For purposes of this Agreement, "Good Reason" shall mean, during the
ninety (90) day period following a change-in-control of the Corporation
(unless the Change-in-Control is the result of the stockholders of the
Corporation approving a merger or consolidation of the Corporation under
Section 2.1 (C), in which case the ninety (90) day period will run from the
closing of such merger or consolidation), a good faith determination by you
that, as a result of such change-in-control, you are not able to discharge
your duties effectively.
6. The reference in Section 2.1 (C) to "at least 80% of the combined voting
power" shall be change to "at least 65% of the combined voting power."
7. Section 4.3.3 is amended in its entirety to read as follows:
In the event you are required to pay excise tax under
Section 4999 of the
Internal Revenue Code as a result of payments under such Severance Agreement
or awards under the 1996 Stock and Incentive Plan, then the Corporation
shall pay you an amount equal to the excise tax and all Federal and
applicable state taxes resulting from payment of the excise tax, and all
resulting taxes upon taxes.
If you elect to agree to these amendments, please indicate your
agreement by executing the enclosed copy of this letter and returning it to
me. Upon my receipt of your executed copy of this amendment, it will become
effective.
Sincerely,
Accepted and Agreed to:
-------------------------- ---------------------
Name
Date
<PAGE>
Proposed Resolution
Directors, November 21, 1997
Whereas, on January 27, 1989, the Board of Directors of SBC Communications
Inc. ("SBC" or "Corporation") approved change-in-control severance agreements
(the "Severance Agreements") to be offered to certain employees of the
Corporation and its subsidiaries (an "Employee");
Whereas, the Severance Agreements provide that upon termination of
employment following a change-in-control, SBC will pay the Employee certain
amounts based, among other things, upon the Corporation's Short Term Incentive
Plan ("STIP") and the Corporation's Long Term Incentive Plan ("LTIP");
Whereas, on March 28, 1997, the Human Resources Committee passed a
resolution that the Corporation would interpret the Severance Agreements so that
performance shares granted under the 1996 Stock and Incentive Plan ("1996 SIP")
would replace LTIP awards and that, for certain persons, performance units
granted under the 1996 SIP would replace STIP awards; and
Whereas, the Board of Directors of the Corporation has reviewed proposed
updating amendments to the Change-in-Control Agreements and finds that with such
amendments the Severance Agreements continue to represent reasonable severance
compensation to the Employees in the event of termination following a change-in-
control;
Therefore, be it:
RESOLVED, that the Chairman and Chief Executive Officer of the Corporation
is authorized to enter into agreements with officers of the Corporation and its
subsidiaries for the amendment of the Severance Agreements and to enter into new
agreements with such other officers, as the Chairman and Chief Executive Officer
chooses in his sole discretion, on substantially the terms presented to this
meeting, including the right to designate the level of benefits pertaining to
each officer up to the maximum authorized and with such modifications of a
non-material nature as he may deem appropriate or convenient; such modifications
and new Severance Agreements may be executed by the Chairman and Chief Executive
Officer or by the Senior Vice President-Human Resources; and
RESOLVED FURTHER, that the appropriate officers of the Corporation are
authorized, at their discretion, to do or cause to be done any and all such acts
and things, and to execute and deliver any and all documents and papers that
they may deem necessary, proper or advisable to carry out the foregoing
resolution.
Exhibit 10o
SBC COMMUNICATIONS INC.
STOCK SAVINGS PLAN
Effective: January 1, 1991
As amended through November 21, 1997
INDEX
Section 1 - Statement of Purpose 1
Section 2 - Definitions 1
Section 3 - Administration of the Plan 5
Section 4 - Participation 5
4.1 Election to Commence a Savings Unit 5
4.2 Termination of Election 6
Section 5 - Pre-Tax Contributions/After-Tax Contributions/Company Match 6
5.1 After-Tax and/or Pre-Tax Account(s) 6
5.2 Company Matching Account 6
5.3 Dividends 7
5.4 Vesting of Matching Account 7
5.5 Statement of Accounts 7
Section 6 - Retirement Alternative 7
6.1 Retirement Distribution 7
6.2 Termination Distribution 8
6.2(a) Termination of Employment Before Retirement 8
6.2(b) Termination of a Savings Unit 9
6.2(c) Loss of Eligibility 9
6.3 Disability 9
6.4 Survivor Distribution 10
Section 7 - Specified Date Alternative 11
7.1 Specified Date Distribution 11
7.2 Termination Distribution 11
7.2(a) Termination of Employment Prior to Specified Date 11
7.2(b) Termination of a Savings Unit 12
7.2(c) Loss of Eligibility 12
7.3 Disability 12
7.4 Survivor Distribution 12
Section 8 - Beneficiary Designation 12
Section 9 - Options 13
9.1 Grants 13
9.2 Term of Options 13
9.3 Exercise Price 13
9.4 Issuance of Options 14
9.5 Exercise and Payment of Options 15
9.6 Restrictions on Exercise and Transfer 16
9.7 Termination by Death 16
9.8 Termination by Disability 16
9.9 Retirement or Other Termination of Employment 17
Section 10 - Discontinuation, Termination, Amendment 17
10.1 Company's Right to Discontinue Offering Savings Units 17
10.2 Company's Right to Terminate Plan 17
10.3 Amendment 17
Section 11 - Miscellaneous 18
11.1 Additional Benefit 18
11.2 Small Distribution 18
11.3 Emergency Distribution 18
11.4 Commencement of Payments 19
11.5 Tax Withholding 19
11.6 Reserved 19
11.7 Transfer to a RWAC 19
11.8 Leave of Absence 19
11.9 Ineligible Participant 20
11.10 Unsecured General Creditor 20
11.11 Offset 20
11.12 Non-Assignability 21
11.13 Employment Not Guaranteed 21
11.14 Gender, Singular and Plural 21
11.15 Captions 21
11.16 Applicable Law 21
11.17 Validity 21
11.18 Notice 21
11.19 Successors and Assigns 21
11.20 Limitations and Adjustments 22
11.21 Distribution Alternative 22
Section 12 - Participation in Other Plan(s) 23
12.1 Participation in Predecessor Plans 23
12.2 Pacific Telesis Group 1996 Executive Deferred Compensation Plan or the
Pacific Telesis Group Non-Qualified Savings Plan 23
STOCK SAVINGS PLAN
Section 1 - Statement of Purpose
The purpose of the Stock Savings Plan ("Plan") is to increase employee stock
ownership and to provide retirement and short-term savings distributions to a
select group of management employees consisting of Eligible Employees of SBC
Communications Inc. (the "Company") and its Subsidiaries ("Participating
Companies").
Section 2 - Definitions
For the purposes of this Plan, the following words and phrases shall have the
meanings indicated, unless the context clearly indicates otherwise:
After-Tax Account. "After-Tax Account" means the account maintained on an
after-tax basis on the books of account of the Company for each Participant for
each Savings Unit to which After-Tax Amounts are credited. After-Tax Accounts
are available only for Savings Units commenced prior to January 1, 1995.
After-Tax Amount. "After-Tax Amount" means contributions made on an After-Tax
basis with respect to a Savings Unit commenced prior to January 1, 1995 under
this Plan.
Agreement. "Agreement" means the written agreement entitled "Stock Savings Plan
Enrollment Form" and/or, effective on or after January 1, 1995, the written
agreement entitled "Short Term Contribution Form" that shall be entered into by
the Company and a Participant to carry out the Plan with respect to such
Participant. The Company may adopt any form for such use or modify any such
form.
Base Salary. "Base Salary" means, as determined by the Company, the
Participant's annual base salary (excluding zone allowances or any other
geographical differential), commissions and Team Awards before reduction due to
any contribution pursuant to this Plan or reduction pursuant to any deferral
plan of Employer, including but not limited to a plan that includes a qualified
cash or deferred arrangement under Section 401(k) of the Internal Revenue Code
("Code").
Beneficiary. "Beneficiary" means the person or persons designated as such in
accordance with Section 8 of this Plan.
Chairman. "Chairman" means the Chairman of the Board of SBC Communications Inc.
Company Match Rate Expressed as a Percent. "Company Match Rate Expressed as a
Percent" means eighty percent (80%), or such higher percentage as may be
determined by the HRC, in its sole discretion, at any time, or such lower
percentage as may be determined by the HRC, in its sole discretion, and
announced to affected Eligible Employees prior to the Unit Start Date with
respect to a Savings Unit.
Disability. "Disability" means inability to work due to being physically
disabled.
Eligible Employee. "Eligible Employee" means an Employee of Employer who (a) is
in active service, (b) is, as determined by the Company, a member of Employer's
"select group of management or highly compensated employees" within the meaning
of the Employment Retirement Income Security Act of 1974, as amended, and
regulations thereunder ("ERISA"), (c) (i) has an annual base salary of $75,000
or more (which may be increased or decreased from time to time for certain
groups of, or all, Employees by the HRC or the Chairman) and satisfies any
employment status required by the HRC or the Chairman or (ii) has an employment
status which has been approved by the Chairman to be eligible to participate in
this Plan, and (d) continuously maintains the employment status upon which
eligibility to participate in this Plan was based; provided, however, the HRC or
the Chairman may, from time to time, exclude any Employee or group of Employees
from being deemed an "Eligible Employee" under this Plan.
In addition, any Employee that holds options to acquire shares of AirTouch
Communications, Inc., under the Pacific Telesis Group Stock Option and Stock
Appreciation Rights Plan or any other stock option plan of Employer as of
December 16 of a particular year shall not be eligible to participate in this
Plan for the following calendar year, and any previously executed Agreement
shall be voided.
Employee. "Employee" means any person employed by Employer on a regular
full-time salaried basis, excluding Employees hired for a fixed maximum term and
excluding Employees who are neither citizens nor permanent residents of the
United States, all as determined by the Company.
Employer. "Employer" means SBC Communications Inc. or any of its Subsidiaries.
Fair Market Value or FMV. "Fair Market Value" or "FMV" means, with respect to
Stock, the closing price of the Stock on the relevant date as reported in the
consolidated reporting system, or if on such date the Stock is not traded on the
New York Stock Exchange ("NYSE"), then the closing price on the immediately
preceding date such Stock is traded.
HRC. "HRC" means the Human Resources Committee of the Board of Directors of SBC.
Options.
"Options" shall mean the options to purchase Stock which shall be issued to a
Participant pursuant to Section 9.
Participant. "Participant" means an Employee or former Employee participating in
the Plan.
Plan Year. "Plan Year" means the calendar year.
Pre-Tax Account. "Pre-Tax Account" means the account maintained on a pre-tax
basis on the books of account of the Company for each Participant for each
Savings Unit to which Pre-Tax Amounts are credited.
Pre-Tax Amount. "Pre-Tax Amount" means the contributions made by a Participant
on a pre-tax basis with respect to a Savings Unit under this Plan.
Retirement. "Retirement" means the termination of a Participant's employment
with Employer, for reasons other than death, on or after the earlier of the
following dates: (1) the date Participant is eligible to retire with an
immediate pension pursuant to the SBC Supplemental Retirement Income Plan
("SRIP"); or (2) the date the Participant has attained one of the following
combinations of age and service at termination of employment on or after April
1, 1997, except as otherwise indicated below:
Net Credited Service Age
10 years or more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
With respect to a Participant who is granted an EMP Service Pension under and
pursuant to the provisions of the SBC Pension Benefit Plan - Nonbargained
Program upon termination of Employment, the term "Retirement" shall include such
Participant's termination of employment.
Retirement Alternative. "Retirement Alternative" means, with respect to any
Savings Unit, the distributions described in Section 6 that the Plan provides
based upon a selection of such alternative.
Retirement Distribution. "Retirement Distribution" means the distribution
described in Section 6.1.
Rotational Work Assignment Company. "RWAC" shall mean any entity with which SBC
Communications Inc. or any of its Subsidiaries may have an agreement to provide
an employee for a rotational work assignment.
Savings Unit. "Savings Unit" means the Participant's Pre-Tax Amount and/or
After-Tax Amount, and associated Company matching contributions, which provide
stated distributions pursuant to Section 6 or Section 7 of this Plan in
accordance with the Participant's Agreement for such Savings Unit.
Shares. "Shares" means an accounting entry representing a number of equivalent
shares of Stock
Short Term Incentive Award. An award paid under the Short Term Incentive Plan or
an award under a similar plan intended by the Committee to be in lieu of an
award under such Short Term Incentive Plan, including (a) the Key Executive
Officer Short Term Award paid under the 1996 Stock and Incentive Plan and (b)
payments made in 1998 under the Pacific Telesis Group Short Term Incentive Plan
("PTGSTIP") to persons identified as "Officer level employees" by the HRC for
purposes of this Plan.
Specified Date. "Specified Date" means, with respect to any Savings Unit for
which the Participant elects the Specified Date Alternative, the fixed date
specified in the Agreement on which the Specified Date Distribution will
commence.
Specified Date Alternative. "Specified Date Alternative" means, with respect to
any Savings Unit, the distributions described in Section 7 that the Plan
provides based upon a selection of such alternative.
Specified Date Distribution. "Specified Date Distribution" means the
distribution described in Section 7.1.
Stock. "Stock" means the common stock of SBC Communications Inc.
Subsidiary. A "Subsidiary" of the Company is any corporation, partnership,
venture or other entity in which the Company has at least a 50% ownership
interest. The HRC may at its sole discretion designate any other corporation,
partnership, venture or other entity a Subsidiary for the purpose of
participating in this Plan.
Team Award. The annual award identified as a "Team Award" by the Company (or any
comparable award identified by the Company as a replacement therefor), excluding
any individual award made in connection therewith. Payments under the PTGSTIP
made during 1998 to persons who are not identified as "Officer level employees"
by the HRC for purposes of this Plan shall be deemed Team Awards under this
Plan.
Unit Period. "Unit Period" means the calendar year with respect to which the
Participant elects to participate in the Plan on a pre-tax basis and/or an
after-tax basis. The Unit Period for a Savings Unit will commence on the Unit
Start Date and end upon the earliest to occur of the following: (i) the last day
of the calendar year which includes the Unit Start Date, (ii) when the
Participant terminates employment or ceases to be an Eligible Employee, or (iii)
upon termination of the Savings Unit.
Unit Start Date. "Unit Start Date" means the date for commencement of a given
Savings Unit. The Unit Start Date will be January 1, and for a Savings Unit
comprised of all or a portion of a Participant's Short Term Incentive Award, the
Unit Start Date shall be the day the Award would otherwise have been paid.
Section 3 - Administration of the Plan
The HRC shall be the sole administrator of the Plan and will administer the
Plan, interpret, construe and apply its provisions in accordance with its terms.
The HRC shall further establish, adopt or revise such rules and regulations as
it may deem necessary or advisable for the administration of the Plan. All
decisions of the HRC shall be final and binding.
Section 4 - Participation
4.1 Election to Commence a Savings Unit. Any Eligible Employee may elect to
commence a Savings Unit on a pre-tax basis by filing a completed Agreement with
the Company prior to the Unit Start Date. Pursuant to said Agreement, the
Eligible Employee shall elect the percentage of Base Salary that shall comprise
Participant's Pre-Tax Amount. Such percentage shall remain in effect for the
duration of the Unit Period even if Base Salary should change. Such Agreement
shall continue to be regarded as, and shall apply as, the Eligible Employee's
election to commence each successive Savings Unit until the Company is advised
in writing in accordance with the aforesaid time requirements by the Eligible
Employee to the contrary. In the Agreement, the Participant shall also elect
either the Retirement Alternative or the Specified Date Alternative and the
timing of distribution of Stock.
The Participant's percentage of Base Salary applicable to a Savings Unit shall
be a whole percentage and must be at least six percent (6%) and not more than
thirty percent (30%).
A Participant shall be permitted to contribute all or a portion of his Short
Term Incentive Award as follows. A Participant's election to contribute all or a
portion of his Short Term Incentive Award which may be paid to a Participant by
an Employer, shall be filed with the Company (on a form to be provided by the
Company for such purpose) prior to the beginning of the calendar year during
which such Award is earned (for Savings Units with Unit Start Date of January 1,
1998, or later, and for PTGSTIP payments that constitute Short Term Incentive
Awards, the election must be filed prior to the beginning of the calendar year
during which such Award is paid), or such earlier time as may be established by
the Chairman. The contribution shall be deemed to have taken place on the day
the Award would otherwise have been paid. In the Agreement relating to the
Award, the Participant shall also elect either the Retirement Alternative or the
Specified Date Alternative and the timing of distribution of Stock. This
election is independent of the election for distribution of contributions
associated with deferrals of Base Salary. Such contribution of all or a portion
of Participant's Short Term Incentive Award shall comprise a separate Savings
Unit. Notwithstanding the foregoing, Short Term Incentive Awards or any portion
thereof contributed to the Plan prior to January 1, 1995, shall be credited into
a 1994 or prior Savings Unit(s) as specified by the Participant.
4.2 Termination of Election. A Participant's election to participate in the Plan
for the duration of the Unit Period is irrevocable upon the filing of his
Agreement with the Company; provided, however, such election may be terminated
with respect to Base Salary not yet paid by mutual agreement in writing between
the Participant and the Company. Such termination if approved shall be effective
beginning the first day of the month following the execution of such mutual
agreement.
Section 5 - Pre-Tax Contributions/After-Tax Contributions/Company Match
5.1 After-Tax and/or Pre-Tax Account(s). The Company shall establish and
maintain a separate After-Tax Account (for contributions pursuant to Savings
Units commenced prior to January 1, 1995 only) and/or Pre-Tax Account for each
Participant for each Savings Unit. On the first business day of each month, the
Company shall credit each Participant's Pre-Tax Account with the number of
Shares found by dividing the Participant's Pre-Tax Amount for the previous month
by the FMV on the last day of such previous month. Annual base salary shall be
deemed contributed when earned; all other amounts shall be deemed contributed
when paid.
Shares credited to Participant's Pre-Tax Account and/or After-Tax Account are
100% vested at all times.
Such Pre-Tax Account and/or After-Tax Account, as applicable, shall be reduced
by the number of Shares corresponding to the number of shares of Stock
distributed by the Company to the Participant or the Participant's Beneficiary
with respect to such Savings Unit pursuant to this Plan.
5.2 Company Matching Account. The Company shall also establish and maintain a
separate Matching Account for each Participant. The Matching Account will hold
the Company's matching contribution to the Plan. Immediately following the
computation of the Shares to be added to each Participant's Pre-Tax Account each
month, the Company shall credit each Participant's Matching Account with the
number of Shares found by taking the Company Match Rate Expressed as a Percent
times the Participant's Pre-Tax Amount for the previous month, and dividing the
resulting figure by the FMV of the Stock on the last day of such previous month;
provided, however, if the Participant is concurrently participating in this Plan
and (a) the match eligible (basic) portion of the SBC Savings Plan or (b) the
match eligible portion of any other qualified plan of Employer, the matching
contribution shall be credited, pursuant to this Plan, with respect to no more
than six percent (6%) of the Participant's monthly Base Salary less the basic
(match eligible) election percentage in such plan; and provided further,
however, Company matching contributions shall be paid, pursuant to this Plan and
all plans of Employer combined, with respect to no more than six percent (6%) of
Participant's monthly Base Salary. Company Match shall only be paid on Base
Salary.
5.3 Dividends. Additional Shares shall be credited to each Participant's Pre-Tax
Account, After-Tax Account, and Matching Account, respectively, for dividends on
Stock, on the basis of the number of Shares credited to each such Account on the
record date for such dividend.
The number of additional Shares to be credited to each Account for any dividend
payment date shall be determined by dividing the total dividends which would
have otherwise been payable on the number of Shares recorded in each Account, by
the FMV on the last day of the month containing the dividend record date. The
additional Shares shall be credited to each Account, as appropriate, on the last
day of the month containing the dividend record date.
5.4 Vesting of Matching Account. A Participant's interest in his Matching
Account shall vest at such time as Participant shall have five (5) years of
service as reflected on the records of Employer; provided, however, the Matching
Account of any Participant who was employed by Employer on December 31, 1988
shall be 100% vested at all times. Shares in the Matching Account relating to a
Savings Unit shall not be available for distribution to the Participant until
vested and: (i) for ten (10) years after the Unit Period for such Savings Unit
has ended and until the Participant is at least fifty-five (55) years of age, or
(ii) until Participant's Retirement or other termination of employment
(including death). Upon termination of employment, all unvested Shares shall be
forfeited.
5.5 Statement of Accounts. Each Participant will receive annual statements in
such form as the Company deems desirable setting forth the balance of Shares
standing to the credit of each of the Participant's Pre-Tax, After-Tax and
Matching Accounts.
Section 6 - Retirement Alternative
Section 6 shall apply to the portions of all Savings Units for which the
Retirement Alternative is elected. (Section 7 shall have no application to such
portions of such Savings Units.) The distributions specified in this Section 6
shall be provided under the Retirement Alternative.
6.1 Retirement Distribution. Upon Retirement or, effective for Savings Units
commenced on or after January 1, 1995, the calendar year following Retirement if
so elected by the Participant, with respect to a Savings Unit, the Company shall
distribute to the Participant each year for up to fifteen (15) years, the number
of years to be selected by Participant in his Agreement, beginning on the first
day of the month next following the date of Retirement or during February of the
year following Retirement if the calendar year following Retirement is elected
for commencing distribution of Savings Units commenced on or after January 1,
1995, and annually on such date thereafter, from Participant's Pre-Tax Account,
After-Tax Account, and Matching Account, shares of Stock corresponding to the
number of Shares in each such Account on such date divided by the number of
distributions to be made immediately prior to each such distribution. During the
payout period, each such Account shall be credited with dividends in accordance
with Section 5.3.
The Participant shall elect the number of years of distribution of a Retirement
Distribution no later than the end of the calendar year immediately preceding
the first distribution. If a Participant's Agreement fails to show an election
as to the number of years of distribution of a Retirement Distribution, and an
election is not made no later than the end of the calendar year immediately
preceding the first distribution, such Participant will receive distribution in
two annual installments beginning on the first of the month next following the
date of Retirement or during February of the year following Retirement,
whichever commencement date was previously elected by the Participant.
In the event that a final determination shall be made by the Internal Revenue
Service or any court of competent jurisdiction that, by reason of Retirement, a
Participant has recognized gross income for Federal income tax purposes in
excess of the Retirement Distribution installment actually distributed by the
Company to which such gross income is attributable, the Company shall make a
lump sum distribution to the Participant of shares of Stock corresponding to the
remaining Shares of his Pre-Tax, After-Tax and Matching Accounts for any
affected Savings Units. If a distribution is made to a Participant pursuant to
this paragraph for any Savings Unit, no other distributions shall thereafter be
made under this Plan with respect to such Savings Unit.
Notwithstanding any election made by the Participant, the Company will
distribute the Participant's Retirement Distribution in the form of a lump sum
distribution if the FMV of his Pre-Tax plus After-Tax plus Matching Accounts for
a Savings Unit is less than $10,000 when distribution of the Retirement
Distribution for such Savings Unit would otherwise commence.
6.2 Termination Distribution.
6.2(a) Termination of Employment Before Retirement. Upon any termination of
employment of the Participant for reasons other than death or Disability or
Retirement, the Company shall distribute to the Participant, with respect to a
Savings Unit, in a lump sum, shares of Stock corresponding to the vested portion
of the Shares standing credited to his Pre-Tax, After-Tax and Matching Accounts
for such Savings Unit determined as of the date of such termination of service
("Termination Distribution").
6.2(b) Termination of a Savings Unit. A Participant shall terminate a Savings
Unit if he terminates his election to participate in the Plan with respect to a
Savings Unit pursuant to Section 4.2. Notwithstanding any other provision of the
Plan, upon such discontinuance, the Participant shall immediately cease to be
eligible for any distribution other than his Termination Distribution with
respect to that Savings Unit (which shall be distributed upon his severance of
employment) except as provided under Section 11.1. The Participant shall
continue to be credited with dividends on the Shares standing credited to his
Pre-Tax, After-Tax and Matching Accounts as provided under Section 5.3 and to
vest in Shares as provided under Section 5.4 while he remains in employment with
the Employer until payment of his Termination Distribution. However, no further
Participant pre-tax or after-tax or Company contributions to this Plan shall be
made pursuant to Sections 5.1 or 5.2 with respect to a Savings Unit after a
Participant terminates such Savings Unit.
6.2(c) Loss of Eligibility. In the event that the Participant ceases to be an
Eligible Employee by reason of a change to an employment status which is not
eligible to participate in this Plan, the Participant shall nevertheless
continue participation in this Plan while he remains in employment with
Employer; however, no further Participant pre-tax contributions or after-tax
contributions, or Company matching contributions shall be made to this Plan
pursuant to Sections 5.1 or 5.2 subsequent to the date of such loss of
eligibility.
6.3 Disability. In the event that a Participant suffers a Disability, pre-tax
contributions and/or after-tax contributions and Company matching contributions
that otherwise would have been credited to Participant's Pre-Tax Account,
After-Tax and Matching Accounts, as applicable, in accordance with Sections 5.1
and 5.2 will continue to be credited to such Accounts out of his disability
payments (as used in this Plan, disability payments and disability benefits
shall refer to only to Employer payments) at the same time and in the same
amounts as they would have been credited if the Participant had not suffered a
Disability for as long as he is eligible to receive monthly disability benefits
equal to 100 percent of his monthly base salary at the time of his Disability.
At such time as the Participant is not eligible to receive monthly disability
benefits equal to 100 percent of his monthly Base Salary at the time of his
Disability, Participant pre-tax contributions and/or after-tax contributions and
Company matching contributions that otherwise would have been credited to the
Accounts of the Participant in accordance with Section 5.1 and 5.2 shall cease.
If the Participant recovers from his Disability and returns within sixty (60)
days thereafter to employment with Employer in an employment status which would
make him eligible to participate in this Plan and prior to the end of the
original Unit Period, the Participant shall continue or resume making pre-tax
contributions and/or after-tax contributions, as the case may be, in accordance
with Section 5.1 and the Company shall continue or resume making matching
contributions, as the case may be, in accordance with Section 5.2 until the end
of the original Unit Period.
If the Participant recovers from his Disability, the Participant shall be
treated as terminating service with Employer on the date of his recovery, unless
within sixty (60) days thereafter he returns to employment with Employer in an
employment status which makes him eligible to participate in this Plan.
If a Participant's Disability terminates by reason of his death, the rights of
his Beneficiary shall be determined pursuant to Section 6.4 as if the
Participant had not been disabled but rather had been in service on the date of
his death and died on such date. If a Participant's Disability terminates by
reason of attainment of age 65, the Participant shall upon the attainment of age
65 be entitled to a Retirement Distribution determined pursuant to Section 6.1.
If a Participant's Disability terminates by reason of Retirement, the
Participant shall be treated as having a Retirement on the date elected by the
Participant and shall be entitled to a Retirement Distribution determined
pursuant to Section 6.1.
6.4 Survivor Distribution.
6.4(a) If a Participant dies while in service with Employer (or while suffering
from a Disability) prior to eligibility for Retirement with respect to a Savings
Unit, upon the Participant's death the Company will distribute to the
Participant's Beneficiary with respect to such Savings Unit, shares of Stock
corresponding to all of the Shares in Participant's Pre-Tax, After-Tax and
Matching Accounts. Distribution shall occur in the month following the date of
death.
6.4(b) If a Participant dies while in service after eligibility for Retirement
with respect to a Savings Unit, but prior to commencement of distribution of a
Retirement Distribution with respect to such Savings Unit, the Company will
distribute to the Participant's Beneficiary the Stock that such Participant's
Beneficiary would have received with respect to such Savings Unit had the
Participant retired and commenced to receive a Retirement Distribution on the
day prior to such Participant's death. Such distributions shall be made in
accordance with the number of installments which the Participant had elected for
distribution of his Retirement Distribution.
6.4(c) If a Participant dies after Retirement but before commencement of
distribution of a Retirement Distribution with respect to a Savings Unit, the
Company will distribute to the Participant's Beneficiary the installments that
Participant would have received with respect to such Savings Unit had the
Participant survived. Payments will commence effective with the Participant's
death. Such distributions shall be made in accordance with the method of
distribution which the Participant had elected for distribution of his
Retirement Distribution.
6.4(d) If a Participant dies after the commencement of payment of a Retirement
Distribution with respect to a Savings Unit, the Company will distribute to the
Participant's Beneficiary the remaining installments that would have been
distributed to the Participant had the Participant survived.
Section 7 - Specified Date Alternative
Section 7 shall apply to the portions of all Savings Units for which the
Specified Date Alternative is elected. (Section 6 shall have no application to
such portions of such Savings Units.) The distributions specified in this
Section 7 shall be provided under the Specified Date Alternative.
7.1 Specified Date Distribution. If a Participant elects the Specified Date
Alternative with respect to a Savings Unit, the Company shall distribute to the
Participant each year for up to four (4) years, the number of years to be
selected by Participant in his Agreement, beginning on the first day of the
month selected in his Agreement for commencement of distributions, and annually
on such date thereafter, from Participant's Pre-Tax Account, After-Tax Account,
and Matching Account (to the extent available for distribution), shares of Stock
corresponding to the number of Shares in each such Account on such date divided
by the number of distributions to be made immediately prior to each such
distribution. During the payout period, each such Account shall be credited with
dividends in accordance with Section 5.3. Shares of Stock corresponding to
Shares in the Matching Account which are not immediately available for
distribution shall be distributed to the Participant in a lump sum distribution
as soon as practicable after such Shares become available for distribution.
While such Shares remain in the Matching Account, such Account shall be credited
with dividends on such Shares in accordance with Section 5.3.
A Participant may elect, as the Specified Date for a Savings Unit, the first day
of any month after the January following the calendar year during which the
Savings Unit commences. If the Participant elects an annual distribution, the
Savings Unit shall be paid out in February following the end of the Unit Period
or as soon thereafter as is practicable.
Notwithstanding any election made by the Participant, the Company will
distribute the Participant's Specified Date Distribution in the form of a lump
sum distribution if the FMV of his Pre-Tax plus After-Tax plus Matching Accounts
for a Savings Unit is less than $10,000 when distribution of a Specified Date
Distribution for such Savings Unit would otherwise commence.
7.2 Termination Distribution.
7.2(a) Termination of Employment Prior to Specified Date. Upon any termination
of employment of the Participant for reasons other than death or Disability or
Retirement before the Specified Date selected for a Savings Unit, the Company
shall distribute to the Participant, with respect to such Savings Unit, in a
lump sum, shares of Stock corresponding to the vested portion of the Shares
standing credited to his Pre-Tax, After-Tax and Matching Accounts for such
Savings Unit determined as of the date of such termination of service
("Termination Distribution").
7.2(b) Termination of a Savings Unit. The provisions of Section 6.2(b) shall
apply with respect to the termination of any Savings Unit for which the
Specified Date Alternative is selected.
7.2(c) Loss of Eligibility. The provisions of Section 6.2(c) shall apply with
respect to the loss of eligibility under any Savings Unit for which the
Specified Date Alternative is selected.
7.3 Disability. In the event that a Participant suffers a Disability, the
provisions of Section 6.3 shall apply except that the provisions of the
following paragraphs shall govern.
If a Participant's Disability terminates by reason of his death prior to the
Specified Date, the rights of his Beneficiary shall be determined pursuant to
Section 7.4 as if the Participant had not been disabled but rather had been in
service on the date of his death and died on such date.
If a Participant suffering from a Disability attains the Specified Date for a
Savings Unit, the Participant shall be entitled to the Specified Date
Distribution determined pursuant to Section 7.1.
7.4 Survivor Distribution.
7.4(a) If a Participant dies prior to the commencement of distribution of the
Specified Date Distribution with respect to a Savings Unit, upon the
Participant's death the Company will distribute to the Participant's Beneficiary
with respect to such Savings Unit, shares of Stock corresponding to all of the
Shares in Participant's Pre-Tax, After-Tax and Matching Accounts. Distribution
shall occur in the month following the date of death.
7.4(b) If a Participant dies after the commencement of payment of an Specified
Date Distribution with respect to a Savings Unit, the Company will distribute to
the Participant's Beneficiary the remaining installments of any such
distribution that would have been distributed to the Participant had the
Participant survived.
Section 8 - Beneficiary Designation
Each Participant shall have the right, at any time, to designate pursuant to
the SBC Rules for Employee Beneficiary Designations as may hereafter be amended
from time to time ("Rules"), which Rules shall apply hereunder and are
incorporated herein by this Reference, any person or persons as his Beneficiary
or Beneficiaries (both primary as well as contingent) to whom distributions of
Stock under this Plan shall be made in the event of his death prior to complete
distribution to Participant of the distributions due him under the Plan. Each
Beneficiary designation shall become effective only when filed in writing with
the Company during the Participant's lifetime on a form prescribed by the
Company with written acknowledgment of receipt.
The filing of a new Beneficiary designation form will cancel all Beneficiary
designations previously filed. The spouse of a married Participant domiciled in
a community property jurisdiction shall join in any designation of Beneficiary
or Beneficiaries other than the spouse.
If a Participant fails to designate a Beneficiary as provided above, or if all
designated Beneficiaries predecease the Participant or die prior to complete
distribution of the Participant's distributions, then the Company shall direct
the distribution of such distributions according to the Rules.
Section 9 - Options
9.1 Grants. The HRC shall determine at its discretion whether the Options issued
pursuant to this Plan shall be non-qualified stock Options or incentive stock
Options within the meaning of Section 422 of the Code. Any Options issued
hereunder shall be non-qualified Options unless the HRC specifies prior to the
Unit Start Date that they shall be incentive stock Options. Notwithstanding any
other provision of the Plan, any incentive stock Options issued under this Plan
shall be issued and exercised in accordance with Section 422 of the Code. The
Options may be issued in definitive form or recorded on the books and records of
the Company for the account of the Participant, at the discretion of the
Company. If the Company elects not to issue the Options in definitive form, they
shall be deemed issued, and the Participants shall have all rights incident
thereto as if they were issued on the dates provided herein, without further
action on the part of the Company or the Participant. In addition to the terms
herein, all Options shall be subject to such additional provisions and
limitations as provided in any Administrative Procedures adopted by the HRC
prior to the issuance of such Options. The number of Options issued to a
Participant shall be reflected on the Participant's annual statement of account.
9.2 Term of Options. The Options may only be exercised: (a) after the earlier of
(i) the expiration of one year from date of issue or (ii) the Participant's
termination of employment (only for Options issued on or after August 1, 1998),
and (b) no later than the tenth anniversary of their issue, and shall be subject
to earlier termination as provided herein.
9.3 Exercise Price. The price per share of Stock purchasable under an Option
shall be the Fair Market Value of the Stock on the date of issuance of the
Options.
9.4 Issuance of Options. February 1 and August 1 of each year shall each be an
Option issuance date, unless Stock is not traded on the NYSE on such day in
which event the immediate following day in which Stock is so traded shall be the
Option issuance date. On each Option issuance date, each Participant shall
receive two Options, or such higher number as may be determined by the HRC, in
its sole discretion, at any time, or such lower number as may be determined by
the HRC, in its sole discretion, and announced to Participants prior to the Unit
Start Date with respect to a Savings Unit, for each Share credited to the
Participant's Pre-Tax Account during the preceding six month periods. The number
of Options to be received shall be determined by multiplying the number of
Shares by the number of Options to be received for each Share and rounding up to
the next whole number; provided, however, that no more than 200,000 Options
shall be issued to any individual during the calendar year. No Share may be
counted more than once for the issuance of Options and Options shall only be
issued for Shares credited to a Savings Unit with respect to its Unit Period.
In addition to the foregoing, the HRC may, at any time and in any manner, limit
the number of Options which may be acquired as a result of the Short Term
Incentive Award being contributed to the Plan. Further, except as otherwise
provided by the HRC, in determining the number of Options to be issued to a
Participant with respect to a Participant's contribution of a Short Term
Incentive Award to the Plan and subsequent crediting of Shares, Options may be
issued only with respect to an amount which does not exceed the target amount of
such award (or such other portion of the award as may be determined by the HRC).
Accordingly, the following rules shall apply:
Options To Be Issued With Respect To A Short Term Incentive Award Contributed To
The Plan.
A Participant shall be permitted to contribute his Short Term Incentive Award,
although paid after Retirement, into the Stock Savings Plan; and, subject to
application of the rule in the following sub paragraph, Options may be issued
thereon and on the dividends that would accumulate thereon applicable to the
calendar year when the Short Term Award was placed into the Plan.
Participants Who Retire, Terminate Employment Or Terminate A Savings Unit.
Options are calculated on August 1 and February 1, in each case for the
preceding six month periods based on the Shares posted to the Participant's
accounts. The August 1 options are for January through June contributions plus
1st quarter and 2nd quarter dividend equivalents. The February 1 options are for
July through December contributions plus the 3rd quarter and 4th quarter
dividend equivalents. If a Participant retires, terminates employment or
terminates a Savings Unit during an ongoing savings period, since the Unit
Period ends upon Retirement, termination, etc., a dividend equivalent shall be
treated as being paid with respect to a Unit Period (i.e., for purposes of
receiving Options on such dividend equivalent) only if the Participant is
employed on any day of the last month of the quarter preceding payment of the
dividend, e.g., one must be employed at least one day in December in order to
receive Options on the fourth quarter dividend equivalent paid the following
February 1. A retiree shall thus receive Options on dividends issued with
respect to his/her last quarter if he or she worked at any time during the last
month of such quarter. The same shall apply if a Savings Unit is terminated.
However, if a Participant terminates employment other than as a result of
Retirement or for any reason other than death or Disability, no further options
shall be issued to the Participant on or after the last day of employment.
9.5 Exercise and Payment of Options. Options shall be exercised by providing
notice to the designated agent selected by the Company (if no such agent has
been designated, then to the Company), in the manner and form determined by the
Company, which notice shall be irrevocable, setting forth the exact number of
shares of Stock with respect to which the Option is being exercised and
including with such notice payment of the Exercise Price. When Options have been
transferred, the Company or its designated agent may require appropriate
documentation that the person or persons exercising the Option, if other than
the Participant, has the right to exercise the Option. No Option may be
exercised with respect to a fraction of a share of Stock.
The Exercise Price shall be paid in full at the time of exercise. No Stock shall
be issued or transferred until full payment has been received therefor.
Payment may be made:
(a) in cash, or
(b) unless otherwise provided by the Committee at any time, and subject to such
additional terms and conditions and/or modifications as the Committee or the
Company may impose from time to time, and further subject to suspension or
termination of this provision by the Committee or the Company at any time, by:
(i) delivery of Stock owned by the Participant in partial (if in partial
payment, then together with cash) or full payment; provided, however, as a
condition to paying any part of the Exercise Price in Stock, at the time of
exercise of the Option, the Participant must establish to the satisfaction of
the Company that the Stock tendered to the Company must have been held by the
Participant for a minimum of six (6) months preceding the tender; or
(ii) if the Company has designated a stockbroker to act as the Company's agent
to process Option exercises, issuance of an exercise notice to such stockbroker
together with instructions irrevocably instructing the stockbroker: (A) to
immediately sell (which shall include an exercise notice that becomes effective
upon execution of a limit order) a sufficient portion of the Stock to pay the
Exercise Price of the Options being exercised and the required tax withholding,
and (B) to deliver on the settlement date the portion of the proceeds of the
sale equal to the Exercise Price and tax withholding to the Company. In the
event the stockbroker sells any Stock on behalf of a Participant, the
stockbroker shall be acting solely as the agent of the Participant, and the
Company disclaims any responsibility for the actions of the stockbroker in
making any such sales. No Stock shall be issued until the settlement date and
until the proceeds (equal to the Exercise Price and tax withholding) are paid to
the Company.
If payment is made by the delivery of Stock, the value of the Stock delivered
shall be equal to the Fair Market Value of the Stock on the day preceding the
date of exercise of the Option.
Restricted Stock may not be used to pay the Option exercise price.
9.6 Restrictions on Exercise and Transfer. During the optionee's lifetime (for
purposes of Paragraphs 9.6 through 9.9, "optionee" shall only refer to the
original recipient of an Option), the optionee's Options shall be exercisable
only by the optionee or by the optionee's guardian or legal representative.
After the death of the optionee, except as otherwise provided by the Company's
Rules for Employee Beneficiary Designations, an Option shall only be exercised
by the holder thereof (including, but not limited to, an executor or
administrator of a decedent's estate) or his or her guardian or legal
representative.
No Option shall be transferable except: (a) upon the death of the optionee in
accordance with the Company's Rules for Employee Beneficiary Designations; and
(b) in the case of any holder after the optionee's death, only by will or by the
laws of descent and distribution.
9.7 Termination by Death. If an optionee's employment with Employer terminates
by reason of death, the Option may thereafter be exercised, to the extent then
exercisable, for a period of three (3) years from the date of such death or
until the expiration of the stated term of such Option, whichever period is
shorter.
9.8 Termination by Disability. If an optionee's employment with Employer
terminates by reason of Disability, any Option held by such optionee may
thereafter be exercised, to the extent it was exercisable at the time of such
termination (or on such accelerated basis as the HRC shall determine at the time
of grant), for a period of three (3) years from the date of such termination of
employment or the expiration of the stated term of such Option, whichever period
is shorter.
9.9 Retirement or Other Termination of Employment. Except as otherwise provided
in this paragraph, if an optionee's employment with Employer terminates as a
result of Retirement or for any reason other than death or Disability, the
Option may be exercised until the earlier of three months (one year for options
granted on or after August 1, 1998) from the date of termination or three years
(five years for options granted on or after August 1, 1998) from the date of
Retirement, as applicable, or the expiration of the term of such Option;
provided, however, that a transfer to a RWAC shall not be considered a
termination of employment to the extent the term of employment at a RWAC is
equal to or less than five years.
Section 10 - Discontinuation, Termination, Amendment
10.1 Company's Right to Discontinue Offering Savings Units. The HRC or the
Chairman may at any time discontinue offerings of additional Savings Units with
respect to any or all future Plan Years. Any such discontinuance shall have no
effect upon the pre-tax contributions or after-tax contributions or the terms or
provisions of this Plan as applicable to any then previously existing Savings
Units.
10.2 Company's Right to Terminate Plan. No Savings Unit may be commenced after
December 31, 2004. The HRC may terminate the Plan at any earlier time.
Termination of the Plan shall mean that (1) there shall be no further offerings
of additional Savings Units with respect to any future Plan Year; (2) pre-tax
contributions and after-tax contributions shall prospectively cease with respect
to all Savings Units for the then Plan Year and thereafter; and (3) all then
currently existing Savings Units shall be treated as follows:
The Participant's Matching Accounts shall be 100% vested. The Participant shall
receive or continue to receive all distributions under this Plan at such time as
provided in and pursuant to the terms and conditions of his Agreement(s) and as
described in this Plan; provided, however, any distributions under a Savings
Unit that is not completed due to a termination of the Plan under this Section
10.2 shall be based upon only the actual pre-tax contributions plus after-tax
contributions plus Company contributions made with respect to such Savings Unit
prior to such termination, and dividends on same thereafter.
10.3 Amendment. The HRC may at any time amend the Plan in whole or in part
including, but not limited to, changing the formulas for determining the amount
of Company contributions under Section 5 or the number of Options to be issued
under Section 9; provided, however, that no amendment, including an amendment to
this Section 10, shall be effective, without the written consent of a
Participant, to alter, to the detriment of such Participant, the distributions
described in this Plan as applicable to a Savings Unit of the Participant or to
decrease the number of Shares standing credited to such Participant's Pre-Tax,
After-Tax and Matching Accounts under the Plan. For purposes of this Section
10.3, an alteration to the detriment of a Participant shall mean a reduction in
the period of time over which stock is distributable under a Participant's
Agreement, or any reduction in the number of Options, increase in Exercise Price
or decrease in the term of an Option. Written notice of any amendment shall be
given to each Participant.
Notwithstanding anything to the contrary contained in this section of the Plan,
the HRC may modify this Plan with respect to any person subject to the
provisions of Section 16 of the Securities Exchange Act of 1934 as amended
("Exchange Act") to place additional restrictions on the exercise of any Option
or the transfer of any Stock not yet issued under the Plan.
Section 11 - Miscellaneous.
11.1 Additional Benefit. The reduction of any benefit payable under the SBC
Pension Benefit Plan (or comparable plan identified by the Company as a
replacement therefore), which results from participation in this Plan, will be
restored as an additional benefit ("make-up piece") under this Plan. The
Participant shall elect prior to commencement of payment of the make-up piece
whether to receive such benefit in cash in a lump sum (consisting of the present
value equivalent of the pension retirement benefit (life annuity) make-up piece)
or such benefit in an annuity form of payment. Notwithstanding the proceeding
provisions of this Section 11.1, if all or a portion of the make-up piece is
paid pursuant to SRIP or another non-qualified plan, then such amount shall not
be payable pursuant to this Plan.
11.2 Small Distribution. Notwithstanding any election made by the Participant,
the Company will distribute any shares of Stock corresponding to Shares in the
form of a lump sum distribution if the Shares in Participant's Pre-Tax Account
plus After-Tax Account plus Matching Account have a FMV of less than $10,000
when such distribution would otherwise commence.
11.3 Emergency Distribution. In the event that the HRC, upon written petition of
the Participant, determines in its sole discretion, that the Participant has
suffered an unforeseeable financial emergency, the Company shall distribute to
the Participant, as soon as practicable following such determination, Stock
corresponding to the number of Shares ordered by the HRC from his Pre-Tax,
After-Tax and Matching Accounts for one or more Savings Units as necessary to
meet the emergency (the "Emergency Distribution"). For purposes of this Plan, an
unforeseeable financial emergency is an unexpected need for cash arising from an
illness, casualty loss, sudden financial reversal, or other such unforeseeable
occurrence. Cash needs arising from foreseeable events such as the purchase of a
house or education expenses for children shall not be considered to be the
result of an unforeseeable financial emergency. Upon receipt of an Emergency
Benefit, a Participant shall not be permitted to commence a new Savings Unit
until the next enrollment after one whole year has elapsed.
11.4 Commencement of Payments. Except as otherwise provided in this Plan,
commencement of a distribution under this Plan shall begin sixty (60) days
following the event which entitles a Participant (or a Beneficiary) to such
distribution, or at such earlier date as may be determined by the HRC.
11.5 Tax Withholding. Upon distribution of Stock, including but not limited to,
shares of Stock issued upon the exercise of an Option, the Company shall
withhold sufficient shares of Stock having a Fair Market Value on the date the
taxes are determined necessary to satisfy the minimum amount of Federal, state,
and local taxes required by law to be withheld as a result of such distribution.
Any fractional share of Stock payable to a Participant shall be withheld as
additional Federal withholding, or, at the option of the Company, paid in cash
to the Participant.
Unless otherwise determined by the Committee, when the method of payment for the
Exercise Price is from the sale by a stockbroker pursuant to Section 9.5(b)(ii),
hereof, of the Stock acquired through the Option exercise, then the tax
withholding shall be satisfied out of the proceeds. For administrative purposes
in determining the amount of taxes due, the sale price of such Stock shall be
deemed to be the Fair Market Value of the Stock.
11.6 Reserved
11.7 Transfer to a RWAC. If a Participant transfers to a RWAC, all of the
Participant's Savings Units shall be frozen upon transfer, unless otherwise
determined by the Company. No further Participant pre-tax contributions,
after-tax contributions or Company contributions shall be made subsequent to the
transfer. During the period of employment at a RWAC (for a period not to exceed
five (5) years), the Participant shall continue to be credited with dividends on
his Pre-Tax, After-Tax and Matching Accounts, as applicable, as provided under
Section 5.3 and to vest in such amounts as provided under Section 5.4, and all
distributions shall continue to be payable to the Participant and his
Beneficiaries in accordance with Section 6 and/or Section 7 hereof, as
applicable. If the Participant has not resumed employment with Employer in an
employment status which makes him eligible to participate in this Plan within
five (5) years from the date of transfer, a Termination Distribution based on
the amounts credited to the Participant's Pre-Tax, After-Tax and Matching
Accounts, as applicable, shall be paid upon termination of employment with a
RWAC or the expiration of such five (5) year period, whichever is earlier.
11.8 Leave of Absence. If a Participant absents himself from employment on a
formally granted leave of absence (i.e., the absence is with formal permission
in order to prevent a break in the continuity of the Employee's term of
employment, which permission is granted in conformity with the rules of the
Employer which employs the individual, as adopted from time to time), all of the
Participant's Savings Units shall automatically be frozen upon such leave of
absence, unless otherwise determined by the HRC. No Participant pre-tax
contributions or after-tax contributions or Company contributions shall be made
during the leave of absence. However, during the leave of absence, the
Participant shall continue to be credited with dividends on his Pre-Tax,
After-Tax and Matching Accounts, as applicable, as provided under Section 5.3
and to vest in such amounts as provided under Section 5.4, and all distributions
shall continue to be payable to the Participant and his Beneficiaries in
accordance with Section 6 and/or Section 7 hereof, as applicable. If the
Participant returns to employment with Employer in an employment status which
makes him eligible to participate in this Plan before completion of or
immediately upon the expiration of the leave of absence, Participant pre-tax
contributions and Company matching contributions will resume until the end of
the original Unit Period. If the Participant has not resumed employment with
Employer in an employment status which makes him eligible to participate in this
Plan before completion of or immediately upon the expiration of the leave of
absence, a Termination Distribution based on the amounts credited to the
Participant's Pre-Tax, After-Tax and Matching Accounts shall be paid to the
Participant.
This Section 11.8 shall not apply with respect to any period during which a
Participant is suffering from a Disability, and such period of Disability shall
not be included under this Section 11.8 as a portion of a period of leave of
absence.
11.9 Ineligible Participant. Notwithstanding any other provisions of this Plan
to the contrary, if any Participant is determined not to be a "management or
highly compensated employee" within the meaning of ERISA, such Participant will
not be eligible to participate in this Plan and shall receive an immediate lump
sum distribution of shares of Stock corresponding to the vested portion of the
Shares standing credited to his Pre-Tax plus After-Tax plus Matching Accounts.
Upon such payment no other distribution shall thereafter be payable under this
Plan either to the Participant or any Beneficiary of the Participant, except as
provided under Section 11.1.
11.10 Unsecured General Creditor. Participants and their Beneficiaries, heirs,
successors, and assigns shall have no legal or equitable rights, interest, or
claims in any property or assets of Employer. No assets of Employer shall be
held under any trust for the benefit of Participants, their Beneficiaries,
heirs, successors, or assigns, or held in any way as collateral security for the
fulfilling of the obligations of Employer under this Plan. Any and all of the
Employer's assets shall be, and remain, the general, unpledged, unrestricted
assets of Employer. The only obligation of Employer under the Plan shall be
merely that of an unfunded and unsecured promise of the Company to distribute
shares of Stock corresponding to Shares, and Options, under the Plan in the
future.
11.11 Offset. If a Participant becomes entitled to a distribution of Stock under
the Plan, the Company may offset against the amount of Stock otherwise
distributable, any claims to reimbursement for intentional wrongdoing by the
Participant against the Employer or an affiliate as well as any overpayment made
under this Plan. Such determination shall be made by the Company.
11.12 Non-Assignability. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or
otherwise encumber, transfer, hypothecate or convey in advance of actual
receipt, shares of Stock corresponding to Shares under the Plan, if any, or any
part thereof, which are, and all rights to which are, expressly declared to be
unassignable and non-transferable. No part of the Stock distributable shall,
prior to actual distribution, be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate maintenance owed by a
Participant or any other person, nor be transferable by operation of law in the
event of a Participant's or any other person's bankruptcy or insolvency.
11.13 Employment Not Guaranteed. Nothing contained in this Plan nor any action
taken hereunder shall be construed as a contract of employment or as giving any
Employee any right to be retained in the employ of Employer or to serve as a
director.
11.14 Gender, Singular and Plural. All pronouns and any variations thereof shall
be deemed to refer to the masculine or feminine, as the identity of the person
or persons may require. As the context may require, the singular may be read as
the plural and the plural as the singular.
11.15 Captions. The captions of the articles, sections, and paragraphs of this
Plan are for convenience only and shall not control nor affect the meaning or
construction of any of its provisions.
11.16 Applicable Law. This Plan shall be governed and construed in accordance
with the laws of the State of Texas, to the extent not preempted by ERISA. Any
action seeking to enforce an Employee's or Beneficiary's rights under this Plan,
including but not limited to the terms of any Agreement or Option issued
hereunder, may only be brought in Bexar County, Texas.
11.17 Validity. In the event any provision of this Plan is held invalid, void,
or unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of this Plan.
11.18 Notice. Any notice or filing required or permitted to be given to the
Company under the Plan shall be sufficient if in writing and hand delivered, or
sent by registered or certified mail, to the principal office of the Company,
directed to the attention of the Vice President-Human Resources of the Company.
Such notice shall be deemed given on the date of delivery or, if delivery is
made by mail, on the date shown on the postmark on the receipt for registration
or certification.
11.19 Successors and Assigns. This Plan shall be binding upon the Company and
its successors and assigns.
11.20 Limitations and Adjustments. The number of shares of Stock which may be
distributed pursuant to the Plan, exclusive of Section 9, is 6,500,000. The
number of stock Options and shares of Stock which may be issued pursuant to
Section 9 of the Plan is 10,500,000 each. Of the foregoing stock options, the
number of incentive stock Options which may be issued pursuant to the Plan is
10,500,000.
In the event of a merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, stock split, share combination, or
other change in the corporate structure of the Company affecting the shares of
Stock, such adjustment shall be made in the number and class of shares of Stock
which may be delivered under the Plan, and in the number and class of and/or
price of shares of Stock subject to outstanding Options granted under the Plan,
as may be determined to be appropriate and equitable by the Committee, in its
sole discretion, to prevent dilution or enlargement of rights.
11.21 Distribution Alternative. Effective November 17, 1995, notwithstanding the
provisions of Section 6 and of Section 7, at any time during the calendar year
prior to the calendar year during which a distribution(s) pursuant to a Savings
Unit is scheduled to commence, a Participant may change his or her previous
election(s) applicable to such Savings Unit to further defer the commencement of
the distribution(s) pursuant to such Savings Unit to a subsequent calendar year,
and in such case to also change the number of installments applicable to the
distribution of the Savings Unit as follows: (a) the new election(s) applicable
to such Savings Unit must conform with either Section 6, if the Retirement
Alternative is the new selection for such Savings Unit, or Section 7, if the
Specified Date Alternative is the new selection for such Savings Unit; (b)
either the Retirement Alternative or the Specified Date Alternative may be
selected for the new election(s) for a Savings Unit irrespective of the
Alternative originally selected for such Savings Unit; (c) the commencement date
for payments pursuant to such Savings Unit may be delayed to any point in time
in a subsequent calendar year - the commencement date for payments may not be
advanced to an earlier point in time; and (d) any number of installments may be
selected pursuant to the new election(s) for a Savings Unit irrespective of the
number of installments originally selected for such Savings Unit. Provided,
however, in the event a Participant is involuntarily terminated from employment
(which shall be deemed to include termination by reason of death), and such
termination is for a reason other than for cause (i.e., willful and gross
misconduct on the part of the Participant that is materially and demonstrably
detrimental to the Company or any subsidiary thereof), and such termination is a
Retirement (or in the case of Participant's death, Participant was Retirement
eligible), then Participant (or Participant's Beneficiary(ies)) may make the
change(s) to Participant's previous election(s) pursuant to this Section 11.21
at the time of Participant's termination of employment. Amounts with respect to
which the Participant's election(s) are modified in accordance with the
provisions of this Section 11.21 shall continue to be subject to all provisions
of this Plan including further distribution modifications in accordance with the
provisions of the Section 11.21.
Section 12 - Participation in Other Plan(s)
12.1 Participation in Predecessor Plans. Effective November 21, 1997, the plans
of the Stock Savings Program shall be merged into the Stock Savings Plan. All
Savings Units under the Stock Based Savings Plan or the Management Stock Savings
Plan shall be transferred to this Plan as of that date and shall be governed by
the terms of this Plan.
12.2 Pacific Telesis Group 1996 Executive Deferred Compensation Plan or the
Pacific Telesis Group Non-Qualified Savings Plan. If an Eligible Employee elects
to participate in this Plan with respect to contributions during 1998, the
Employee may not defer, under the Pacific Telesis Group 1996 Executive Deferred
Compensation Plan or the Pacific Telesis Group Non-Qualified Savings Plan, any
compensation otherwise payable in 1998, and such election under this Plan shall
operate as a termination of participation in such Pacific Telesis Group plans to
the extent it relates to any deferrals of compensation otherwise payable in
1998.
EXHIBIT 10p
LOGO
SBC Communications Inc.
1992 STOCK OPTION PLAN
Plan Effective: January 1, 1996
As amended through: November 21, 1997
<PAGE>
TABLE OF CONTENTS
1.1 Purpose..........................................................1
1.2 Additional Definitions...........................................1
1.3 Effective Date...................................................2
2.1 The Committee....................................................2
2.2 Authority of the Committee.......................................3
3.1 Number of Shares.................................................3
3.2 Lapsed Options...................................................3
3.3 Adjustments in Authorized Shares.................................3
4.1 Grant of Options.................................................4
4.2 Form of Issuance.................................................4
4.3 Option Price.....................................................4
4.4 Duration of Option...............................................4
4.5 Vesting of Options...............................................4
4.6 Exercise of Options..............................................4
4.7 Payment:.........................................................5
4.8 Termination of Employment........................................6
4.9 Transfers........................................................6
4.10 Restrictions on Exercise and Transfer of Options.................7
4.11 Change in Control................................................7
5.1 Amendment, Modification, and Termination.........................8
5.2 Awards Previously Granted........................................8
6.1 Tax Withholding..................................................8
7.1 Employment.......................................................8
7.2 Participation....................................................8
7.3 Successors.......................................................8
7.4 Governing Law....................................................9
<PAGE>
SBC COMMUNICATIONS INC.
1992 STOCK OPTION PLAN
ARTICLE 1. PURPOSE, DEFINITIONS AND EFFECTIVE DATE
1.1 Purpose. The purpose of the SBC Communications Inc. 1992 Stock Option Plan
("Plan") is to promote the success and enhance the value of SBC
Communications Inc. (the "Company") by linking the personal interests of
the Employees of the Company and its Subsidiaries to the interests of the
Company's shareowners, and by providing Employees with an additional
incentive for outstanding performance. To achieve this purpose, Options to
purchase common stock of the Company may be granted to Employees of the
Company and its Subsidiaries pursuant to the Plan.
1.2 Additional Definitions. In addition to definitions set forth elsewhere in
the Plan, for purposes of the Plan:
(a) "Cause" shall mean willful and gross misconduct on the part of a
Participant that is materially and demonstrably detrimental to the
Company or any Subsidiary as determined by the Committee in its sole
discretion.
(b) "Employee" shall mean any management employee of the Company or of
one of its subsidiaries in the third (3rd) level of management or
above. Directors who are not otherwise employed by the Company or
any of its subsidiaries shall not be considered Employees under the
Plan.
(c) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor Act thereto.
(d) "Fair Market Value" shall mean the closing price of Shares on the
relevant date, or on the next preceding trading day if such date was
not a trading day, all as reported on the New York Stock Exchange
Composite Trading listings, or a similar report selected by the
Committee.
(e) "Option" shall mean the right to purchase one or more shares of the
common stock of SBC Communications Inc. on the terms and conditions
contained in this Plan, the rules of the Committee, and the terms of
the Option.
(f) "Retirement" shall mean the termination of a Participant's employment
with the Company or one of its Subsidiaries, for reasons other than
death, disability (as that term is used in the SBC Senior Management
Long Term Disability Plan) or for Cause, on or after the earlier of
the following dates: (1) the date the Participant is eligible to
retire with an immediate pension pursuant to the SBC Supplemental
Retirement Income Plan; or (2) the date the Participant has attained
one of the following combinations of age and service at termination of
employment on or after April 1, 1997, except as otherwise indicated
below:
Net Credited Service Age
10 years of more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
With respect to a Participant who is granted an EMP Service
Pension under and pursuant to the provisions of the SBC Pension
Benefit Plan - Nonbargained Program upon termination of employment,
the term "Retirement" shall include such Participant's termination
of employment.
(g) "Rotational Work Assignment Company" or "RWAC" shall mean Bell
Communications Research, Inc. formerly the Central Services
Organization, Inc., and/or any other entity with which SBC
Communications Inc. or any of its subsidiaries may enter into an
agreement to provide an employee for a rotational work assignment.
(h) "Shares" or "Stock" or "Shares of Stock" shall mean the common stock
of SBC Communications Inc..
(i) "Subsidiary" shall mean any corporation in which the Company owns
directly, or indirectly through subsidiaries, more than fifty
percent (50%) of the total combined voting power of all classes of
Stock, or any other entity (including, but not limited to,
partnerships and joint ventures) in which the Company owns more than
fifty percent (50%) of the combined equity thereof.
1.3 Effective Date. The Plan shall be effective on the date it is approved by
the Company's shareowners.
ARTICLE 2. ADMINISTRATION
2.1 The Committee. The Plan shall be administered by a Committee (the
"Committee") which shall be the Human Resources Committee or any other
Committee appointed by the Board of Directors (the "Board") consisting of
two or more Directors, each of whom is a disinterested administrator,
i.e., a Director who was not, during the one year prior to service as an
administrator of the Plan, or during such service, granted or awarded
equity securities as defined in Rule 16a-1(d) of the Exchange Act)
pursuant to this Plan or any other plan of the Company, except as
otherwise provided in Rule 16b-3(c)(2)(I)(A) through (D) promulgated under
the Exchange Act.
2.2 Authority of the Committee. The Committee shall have full power, except as
limited by law or by the Articles of Incorporation or Bylaws of the
Company, and subject to the provisions of this Plan, to select the
recipients of ("Participants"); determine the sizes of grants of Options
under the Plan; determine the exercise price, duration, vesting
requirements, and period of exercisability of each Option; determine the
terms and conditions of such Option grants in a manner consistent with the
Plan; construe and interpret the Plan and any agreement or instrument
entered into under the Plan; establish, amend, or waive rules and
regulations for the Plan's administration; and, subject to the provisions
of Article 5 - Amendment, Modification, and Termination, herein, amend the
terms and conditions of any outstanding Option to the extent such terms
and conditions are within the discretion of the Committee as provided in
the Plan. Further, the Committee shall make all other determinations which
may be necessary or advisable for the administration of the Plan.
All determinations and decisions made by the Committee pursuant to
the provisions of the Plan, and all related orders and resolutions of the
Board shall be final, conclusive, and binding on all persons, including
the Company, its shareowners, Employees, participants, and their estates
and beneficiaries.
ARTICLE 3. SHARES SUBJECT TO THE PLAN
3.1 Number of Shares. Subject to adjustment as provided in Section 3.3
Adjustments in Authorized Shares, herein, the total number of Shares of
Stock for which Options may be granted under the Plan may not exceed
9,000,000 Shares. These Shares may be either authorized but unissued or
reacquired Shares.
NOTE: The number of Shares for which Options may be granted under the Plan
effectively doubled to 18,000,000 to reflect the May, 1993 two-for-one
stock dividend/split.
3.2 Lapsed Options. If any Option granted under the Plan is canceled,
terminates, expires, or lapses for any reason, any Shares subject to such
Option again shall be available for the grant of an Option under the Plan.
3.3 Adjustments in Authorized Shares. In the event of a merger,
reorganization, consolidation, recapitalization, separation, liquidation,
stock dividend, stock split, share combination, or other change in the
corporate structure of the Company affecting the Shares, such adjustment
shall be made in the number and class of Shares which may be delivered
under the plan, and in the number and class of and/or price of Shares
subject to outstanding Options granted under the Plan, as may be
determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights; and provided
that the number of Shares subject to any Option shall always be a whole
number.
ARTICLE 4. STOCK OPTIONS
4.1 Grant of Options. Subject to the terms and provisions of the Plan, Options
may be granted to such Employees, at such times and on such terms and
conditions, as shall be determined by the Committee; provided, however, no
Options may be granted after the 10th anniversary of the effective date of
the Plan. The Committee shall have discretion in determining the number of
Options and the number of Shares subject to each Option granted to each
participant. Without limiting the generality of the foregoing, the
Committee shall have the authority to establish guidelines setting forth
anticipated grant levels which correspond to various salary grades or the
equivalent thereof.
4.2 Form of Issuance. Options may be issued in the form of a certificate or
may be recorded on the books and records of the Company for the account of
the Participant. If an Option is not issued in the form of a certificate,
then the Option shall be deemed granted upon issuance of a notice of the
grant addressed to the recipient. The terms and conditions of an Option
shall be set forth in the certificate, in the notice of the issuance of
the grant, or in such other documents as the Committee shall determine.
The Committee may require a Participant to enter into a written agreement
containing terms and conditions relating to the Option and its exercise.
4.3 Option Price. The Option Price for each grant of an Option shall be
determined by the Committee; provided, however, that the minimum Option
Price shall be one hundred percent (100%) of the Fair Market Value of a
Share on the date the Option is granted.
4.4 Duration of Option. Each Option shall expire at such time as the Committee
shall determine at the time of grant; provided, however, that no Option
shall be exercisable later than the tenth (10th) anniversary date of its
grant.
4.5 Vesting of Options. Options shall vest at such times and under such terms
and conditions as determined by the Committee. The Committee shall have
the authority to accelerate the vesting of any Option; provided, however,
that the Senior Executive Vice President - Human Resources, or his
successor, or such other person designated by the Committee, shall have
the authority to accelerate the vesting of Options for any Participant who
is in the fifth level of management or below and who is not a Director or
an officer (as that term is defined in Section 16 of the Exchange Act).
4.6 Exercise of Options. Options granted under the Plan shall be exercisable
at such times and be subject to such restrictions and conditions as the
Committee shall in each instance approve, which need not be the same for
each grant or for each Participant. However, in no event may any Option
granted under this Plan become exercisable prior to the first anniversary
of the date of its grant, except as provided in Section 4.11 Change in
Control.
Options shall be exercised by providing notice to the designated
agent selected by the Company (if no such agent has been designated, then
to the Company), in the manner and form determined by the Company, which
notice shall be irrevocable, setting forth the exact number of Shares with
respect to which the Option is being exercised and including with such
notice payment of the Option Price. When Options have been transferred,
the Company or its designated agent may require appropriate documentation
that the person or persons exercising the Option, if other than the
Participant, has the right to exercise the Option. No Option may be
exercised with respect to a fraction of a Share.
4.7 Payment. The Option Price shall be paid in full at the time of exercise.
No Shares shall be issued or transferred until full payment has been
received therefor. Payment may be made:
(a) in cash, or
(b) unless otherwise provided by the Committee at any time, and subject
to such additional terms and conditions and/or modifications as the
Committee or the Company may impose from time to time, and further
subject to suspension or termination off this provision by the
Committee or the Company at any time, by:
(i) delivery of Shares of Stock owned by the Participant in
partial (if in partial payment, then together with cash) or full
payment; provided, however, as a condition to paying any part of
the Option Price in Stock, at the time of exercise of the Option,
the Participant must establish to the satisfaction of the Company
that the Stock tendered to the Company must have been held by the
Participant for a minimum of six (6) months preceding the tender;
or
(ii) if the Company has designated a stockbroker to act as the
Company's agent to process Option exercises, issuance of an
exercise notice to such stockbroker together with instructions
irrevocably instructing the stockbroker: (A) to immediately sell
(which shall include an exercise notice that becomes effective
upon execution of a limit order) a sufficient portion of the
Shares to pay the Option Price of the Options being exercised and
the required tax withholding, and (B) to deliver on the
settlement date the portion of the proceeds of the sale equal to
the Option Price and tax withholding to the Company. In the event
the stockbroker sells any Shares on behalf of a Participant, the
stockbroker shall be acting solely as the agent of the
Participant, and the Company disclaims any responsibility for the
actions of the stockbroker in making any such sales. No Stock
shall be issued until the settlement date and until the proceeds
(equal to the Option Price and tax withholding) are paid to the
Company.
If payment is made by the delivery of Shares of Stock, the value of
the Shares delivered shall be equal to the Fair Market Value of the Shares
on the day preceding the date of exercise of the Option
Restricted Stock may not be used to pay the Option Price.
4.8 Termination of Employment.
(a) Termination by Reason of Death or Disability. In the event the
employment of Participant is terminated by reason of death or disability
(as that term is used in the SBC Communications Inc. Senior Management Long
Term Disability Plan), any outstanding Options granted to the Participant
shall vest as of the date of termination of Employment and may be
exercised, if at all, no more than one (1) year following termination of
employment, unless the Options, by their terms, expire earlier.
(b) Termination by Retirement. In the event the Employment of a Participant
is terminated by reason of Retirement, any outstanding Options granted to
the Participant which are vested as of the date of termination of
Employment may be exercised, if at all, no more than three (3) years
following termination of Employment, unless the Options, by their terms,
expire earlier.
(c) Termination of Employment for Other Reasons. If the Employment of a
Participant shall terminate for any reason other than the reasons set forth
in (a) or (b), above, and other than for Cause, all outstanding Options
granted to the Participant which are vested as of the date of termination
of Employment may be exercised by the Participant within the period
beginning on the effective date of termination of Employment and ending
three (3) months after such date, unless the Options, by their terms,
expire earlier.
(d) Termination for Cause. If the Employment of a Participant shall
terminate for Cause, all outstanding Options held by the Participant shall
immediately terminate and be forfeited to the Company, and no additional
exercise period shall be allowed.
(e) Options not Vested at Termination. Any outstanding Options not vested
as of the effective date of termination of employment shall expire
immediately and shall be forfeited to the Company.
4.9 Transfers. For purposes of the Plan, transfer of Employment of a
Participant between the Company and any one of its Subsidiaries (or
between Subsidiaries) or between the Company or a subsidiary and an RWAC,
to the extent the term of Employment an RWAC is equal to or less than five
years shall not be deemed a termination of Employment.
4.10 Restrictions on Exercise and Transfer of Options. During the Participant's
lifetime, the Participants Options shall be exercisable only by the
Participant or by the Participants guardian or legal representative. After
the death of the Participant, except as otherwise provided by the
Company's Rules for Employee Beneficiary Designations, an Option shall
only be exercised by the holder thereof (including, but not limited to, an
executor or administrator of a decedent's estate) or his or her guardian
or legal representative.
No Option shall be transferable except: (a) in the case of the
Participant, only upon the Participant's death and in accordance with the
Company's Rules for Employee Beneficiary Designations; and (b) in the case
of any holder after the Participant's death, only by will or by the laws
of descent and distribution.
4.11 Change in Control. Upon the occurrence of a Change in Control all Options
held by Participant s hereunder shall immediately become vested and
exercisable, notwithstanding the provisions of Section 4.6 Exercise of
Options to the contrary. A "Change in Control" shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or
corporation owned directly or indirectly by the shareowners of the Company
in substantially the same proportions as their ownership of stock of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, or securities of the Company
representing twenty percent (20%) or more of the total voting power
represented by the Company's then outstanding voting securities, or (ii)
during any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company
and any new Director whose election by the Board of Directors or
nomination for election by the Company's shareowners was approved by a
vote of at least two-thirds (2/3) of the Directors then still in office
who either were Directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the shareowners of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least eighty
percent (80%) of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the shareowners of the Company
approve a plan of complete liquidation of the Company or an agreement for
the sale of disposition by the Company of all or substantially all the
Company's assets.
ARTICLE 5. AMENDMENT, MODIFICATION, AND TERMINATION
5.1 Amendment, Modification, and Termination. The Board or the Committee may
at any time and from time to time, terminate, amend, or modify the Plan.
However, no such amendment, modification, or termination of the Plan may
be made without the approval of the shareowners of the Company, if such
approval is required by the Internal Revenue Code, by the insider trading
rules of Section 16 of the Exchange Act, by any national securities
exchange or system on which the Shares are then listed or reported, or by
a regulatory body having jurisdiction with respect hereto.
5.2 Awards Previously Granted. No termination, amendment, or modification of
the Plan shall in any material manner adversely affect any Option
previously granted under the Plan, without the written consent of the
Participant holding such Option.
ARTICLE 6. WITHOLDING
6.1 Tax Withholding. Upon exercise of an Option, the Company shall withhold
sufficient Shares having a Fair Market Value on the date the taxes are
determined in an amount necessary to satisfy the minimum amount of Federal,
state, and local taxes required by law to be withheld as a result of such
exercise.
Any fractional share of Stock payable to a Participant shall be
withheld as additional Federal withholding, or, at the option of the
Company, paid in cash to the Participant.
Unless otherwise determined by the Committee, when the method of
payment for the Option Price is from the sale by a stockbroker pursuant to
Section 4.7(b)(ii), hereof, of the Stock acquired through the Option
exercise, then the tax withholding shall be satisfied out of the proceeds.
For administrative purposes in determining the amount of taxes due, the
sale price of such Stock shall be deemed to be the Fair Market Value of
the Stock.
ARTICLE 7. MISCELLANEOUS
7.1 Employment. Nothing in the Plan shall interfere with or limit in any way
the right of the Company or any subsidiary thereof to terminate any
Participant's Employment at any time, nor confer upon any Participant any
right to continue in the Employment of the Company or any Subsidiary
thereof.
7.2 Participation. No employee shall have the right to be selected to receive
an Option under the Plan, or having been so selected, to be selected to
receive a future Option.
7.3 Successors. All obligations of the Company under the Plan shall be binding
on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business and/or assets of
the Company.
7.4 Governing Law. The Plan, and any and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of
Missouri.
Exhibit 10-q
SBC COMMUNICATIONS INC.
OFFICER RETIREMENT SAVINGS PLAN
Effective: November 1, 1993
As amended through May 1, 1997
<PAGE>
TABLE OF CONTENTS
Section 1 Statement of Purpose..............................................1
Section 2 Definitions.......................................................1
Section 3 Administration of the Plan........................................3
Section 4 Participation.....................................................4
4.1 Commencement of a Savings Unit....................................4
4.2 Termination of Participation......................................4
Section 5 Participant Account(s)............................................4
5.1 Participant.......................................................4
5.2 Statement of Account(s)...........................................5
Section 6 Benefits..........................................................5
6.1 Retirement Distribution...........................................5
6.2 Termination Distribution..........................................6
6.3 Disability........................................................6
6.4 Survivor Distribution.............................................7
Section 7 Beneficiary Designation...........................................7
Section 8 Discontinuation, Termination, Amendment...........................8
8.1 Company's Right to Discontinue Offering Savings Units.............8
8.2 Company's Right to Terminate Plan.................................8
8.3 Amendment.........................................................8
Section 9 Miscellaneous.....................................................9
9.1 Additional Benefit................................................9
9.2 Small Distribution................................................9
9.3 Emergency Distribution............................................9
9.4 Commencement of Payments..........................................9
9.5 Withholding......................................................10
9.6 Transfer to Bellcore.............................................10
9.7 Leave of Absence.................................................10
9.8 Ineligible Participant...........................................10
9.9 Unsecured General Creditor.......................................11
9.10 Offset...........................................................11
9.11 Non-Assignability................................................11
9.12 Employment Not Guaranteed........................................11
9.13 Gender, Singular and Plural......................................11
9.14 Captions.........................................................11
9.15 Applicable Law...................................................11
9.16 Validity.........................................................12
9.17 Notice...........................................................12
9.18 Successors and Assigns...........................................12
9.19 Trust Fund.......................................................12
<PAGE>
SBC COMMUNICATIONS INC.
OFFICER RETIREMENT SAVINGS PLAN
Section 1 Statement of Purpose. The purpose of the Officer Retirement
Savings Plan ("Plan") is to provide a means for elective retirement
savings for a select group of management employees consisting of
Eligible Employees of SBC Communications Inc. (the "Company") and
its subsidiaries ("Participating Companies").
Section 2 Definitions. For the purposes of this Plan, the following words
and phrases shall have the meanings indicated, unless the context
clearly indicates otherwise:
Administrative Committee. "Administrative Committee" means a
committee of three or more members, at least one of whom is a Senior
Manager, who shall be designated by the Senior Executive Vice
President-Human Resources, or successor position, to administer the
Plan.
Agreement. "Agreement" means the written agreement entitled "OFFICER
RETIREMENT SAVINGS PLAN ("PLAN") ENROLLMENT FORM" (substantially in
the form attached hereto as Exhibit (1)) that shall be entered into
by the Employer and a Participant to carry out the Plan with respect
to such Participant.
Base Salary. "Base Salary" means the Participant's base salary
before reduction due to any contribution pursuant to this Plan or
reduction pursuant to any deferral plan of the Employer, including
but not limited to a plan that includes a qualified cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code
("Code").
Beneficiary. "Beneficiary" means the person or persons designated
as such in accordance with Section 7 of this Plan.
Board. "Board" means the Board of Directors of SBC Communications
Inc.
Chairman. "Chairman" means the Chairman of the Board of SBC
Communications Inc. ("Chairman").
Declared Rate. "Declared Rate" means with respect to any Plan Year
the interest rate which will be credited during such Plan Year on a
Participant's Pre-Tax Account for any Savings Unit which has not yet
commenced benefit payments. The Declared Rate for each Plan Year
will be announced on/or before the beginning of the applicable Plan
Year. The Declared Rate for any Plan Year shall be the Moody's
Corporate Bond Yield Average-Monthly Average Corporates a
published by Moody's Investor's Service, Inc. (or any successor
thereto) for the month of September before the Plan Year in question
and rounded to the next higher tenth of one percent, or, if such
yield is no longer published, a substantially similar average
selected by the Administrative Committee.
Disability. "Disability" means inability to work due to being
physically disabled.
Eligible Employee. "Eligible Employee" means an Employee of the
Employer who (a) is in active service, (b) is an Officer or has an
employment status which has been approved by the Board or the HRC to
be eligible to participate in this Plan, (c) has an annual Base
Salary exceeding S250,000 and (d) who continuously maintains the
employment status upon which eligibility to participate in this Plan
was based.
Employee. "Employee" means any person employed by the Employer on
a regular full-time salaried basis.
Employer. "Employer" means SBC Communications Inc. or any of its
subsidiaries.
HRC. "HRC" means the Human Resources Committee of the Board.
Officer. "Officer" means an individual employed by Employer who
has been elected an officer of the Company by the Board and whose
title is Vice President or higher or an individual at an
equivalent level in a Subsidiary.
Participant. "Participant" means an Employee participating in the
Plan.
Plan Year. "Plan Year" means the calendar year except the 1993
Plan Year shall mean November 1, 1993 through the end of the 1993
calendar year.
Pre-Tax Account. "Pre-Tax Account" means the account maintained
on a pre-tax basis on the books of account of the Employer for
each Participant for each Savings Unit to which Pre-Tax Amounts
are credited.
Pre-Tax Amount. "Pre-Tax Amount" means an amount of Base Salary
contributed by Participant on a pre-tax basis with respect to a
Savings Unit under this Plan.
Retirement. "Retirement" means the termination of a Participant's
employment with Employer, for reasons other than death, on or
after the earlier of the following dates: (1) the date the
Participant is eligible to retire with an immediate pension
pursuant to the SBC Senior Management Supplemental Retirement
Income Plan ("SRIP"); or (2) the date the Participant has
attained one of the following combinations of age and service at
termination of employment on or after April 1, 1997, except as
otherwise indicated below:
Net Credit Service Age
10 years of more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
With respect to a Participant who is granted an EMP Service Pension
under and pursuant to the provisions of the SBC Pension Benefit Plan
- Nonbargained Program upon termination of employment, the term
"Retirement" shall include such
Participant's termination of employment.
Retirement Distribution. "Retirement Distribution" means the
distribution described in Section 6.1.
Savings Unit. "Savings Unit" means the Participant's Pre-Tax Amount
which provides stated distributions pursuant to Section 6 of this
Plan in accordance with the Participant's Agreement for such Savings
Unit.
Subsidiary. A "Subsidiary" of the Company is any corporation,
partnership, venture or other entity in which the Company has at
least a 50% ownership interest.
Unit Period.. "Unit Period" means the calendar year with respect to
which the Participant participates in the Plan. The Unit Period for
a Savings Unit will commence on the Unit Start Date and end upon the
earliest to occur of the following: (i) the last day of the calendar
year which includes the Unit Start Date, or (ii) when the
Participant terminates employment, terminates the Savings Unit or
ceases to be an Eligible Employee.
Unit Start Date. "Unit Start Date" means the date for commencement
of a given Savings Unit. The Unit Start Date will be January 1,
except (1) a new Participant shall be permitted to elect a Unit
Start Date within thirty (30) days after such Participant first
becomes an Eligible Employee and (2) with respect to a 1993 Savings
Unit, the Unit Start Date shall be November 1, 1993.
Section 3 Administration of the Plan. The Administrative Committee shall
--------------------------
be the sole administrator of the Plan and will interpret,
construe and apply Plan provisions in accordance with the terms
of the Plan. The Administrative Committee shall further
establish, adopt or revise such rules and regulations as it may
deem necessary or advisable for the administration of the Plan.
All decisions of the Administrative Committee shall be final and
binding.
Section 4 Participation.
4.1 Commencement of a Savings Unit. Any Eligible Employee may commence a
Savings Unit by filing a completed Agreement with the Administrative
Committee prior to the Unit Start Date. With respect to the 1993
Plan Year, any Eligible Employee may commence a 1993 Savings Unit by
filing a completed Agreement with the Administrative Committee prior
to December 1, 1993. Pursuant to any such Agreement, the Eligible
Employee shall elect the percentage of monthly Base Salary that
shall comprise Participant's Pre-Tax Amount. Such percentage shall
remain in effect for the duration of the Unit Period even if Base
Salary should change. In the Agreement, the Participant shall also
elect the timing of distribution of benefits pursuant to this Plan.
Only annual Base Salary amounts expected to exceed $250,000 per Plan
Year shall be eligible to be contributed under this Plan.
4.2 Termination of Participation. A Participant's participation in the
Plan for the duration of the Unit Period is irrevocable upon the
filing of his Agreement with the Administrative Committee; provided
however, such participation may be terminated by mutual agreement in
writing between the Participant and the Administrative Committee.
Such termination, if approved, shall be effective beginning the
first day of the month following the execution of such mutual
agreement.
Section 5 Participant Account(s).
5.1 Participant Deferrals. The percentage of monthly Base Salary
that shall comprise Participant's Pre-Tax Amount shall be
deferred each month or as otherwise may be permitted by the HRC.
The Administrative Committee shall establish and maintain a
separate Pre-Tax Account for each Participant for each Savings
Unit. The amount by which a Participant's Base Salary is reduced
each month shall be credited by the Employer to the Participant's
Pre-Tax Account for such Savings Unit no later than the first day
of the following month, and such Pre-Tax Account shall be debited
by the amount of any payments made by the Employer to the
Participant or the Participant's Beneficiary with respect to such
Savings Unit pursuant to this Plan. With respect to each Savings
Unit, the Pre-Tax Account of a Participant shall be deemed to
bear interest from the date such Pre-Tax Account was established
through the date of commencement of benefit payments at a rate
equal to the applicable Declared Rate for the particular Plan
Year on the balance from month-to-month in such Pre-Tax Account.
Interest will be credited monthly to the Pre-Tax Account at
one-twelfth of the annual Declared Rate, compounded annually.
Following the commencement of benefit payments with respect to a
Savings Unit, a Participant's Pre-Tax Account shall be deemed to
bear interest on the balance in such Pre-Tax Account from
month-to-month at a rate equal to one-twelfth of the average of
the annual Declared Rates for the five (5) Plan Years ending
prior to commencement of benefit payments (or, if the Plan has
been in operation for less than five (5) Plan Years, the average
of the Declared Rates for all Plan Years ending prior to
commencement of benefit payments). A Participant's interest in
his Pre-Tax Account(s) shall be 100% vested at all times.
5.2 Statement of Account(s). Each Participant will receive annual
statements in such form as the Administrative Committee deems
desirable setting forth the balance of the Participant's Pre-Tax
Account(s).
Section 6 Benefits.
6.1 Retirement Distribution. Upon Retirement, with respect to a Savings
Unit, the Employer shall pay to the Participant an equal amount each
month for one hundred eighty (180) months, beginning in January of
the year next following the date of Retirement, which will amortize
over such one hundred eighty (180) equal monthly payments the sum of
(a) the value of the Pre-Tax Account for such Savings Unit as of the
date of commencement of payments, plus (b) the interest that will
accrue on the unpaid balance in such Pre-Tax Account during such one
hundred eighty (180) month period pursuant to Section 5.1 ("Standard
Retirement Benefit"). Alternatively, a Participant may elect in the
Agreement for any Savings Unit to receive an alternative retirement
benefit in lieu of the Standard Retirement Benefit ("Alternative
Retirement Benefit") for such Savings Unit either in a lump sum
payment or in sixty (60) or one hundred twenty (120) equal monthly
payments, with the amount of each monthly payment to be calculated
in accordance with the principle stated in the preceding sentence.
If a Participant fails to submit an election as to the number of
months of distribution for Participant's Retirement Benefit prior to
January 1 of the year next following the date of Retirement, such
Participant will receive distribution in the form of a Standard
Retirement Benefit.
In the event that a final determination shall be made by the
Internal Revenue Service or any court of competent jurisdiction
that, by reason of Retirement, a Participant has recognized gross
income for Federal income tax purposes in excess of the Retirement
Distribution installment actually distributed by the Employer to
which such gross income is attributable, the Employer shall make a
lump sum distribution to the Participant of his Pre-Tax Account for
any affected Savings Unit. If a distribution is made to a
Participant pursuant to this paragraph for any Savings Unit, no
other distributions shall thereafter be made under this Plan with
respect to such Savings Unit.
Notwithstanding any election made by the Participant, the
Administrative Committee will distribute the Participant's
Retirement Distribution in the form of a lump sum distribution if
the value of a Savings Unit is less than $10,000 when distribution
of the Retirement Distribution for such Savings Unit
would otherwise commence.
In the event that the HRC shall determine that it is in the best
interest of a Participant and the Company, the HRC may, with the
Participant's consent, in its complete and sole discretion,
distribute the Participant's Retirement Distribution prior to the
Participant's Retirement at such date determined by the HRC.
6.2 Termination Distribution.
(a) Termination of Employment Before Retirement. Termination of
employment of the Participant for reasons other than death or
Retirement shall not affect any distribution elections
previously made by the Participant with respect to a Savings
Unit. The termination shall be considered a Retirement under
provisions of the Plan.
(b) Termination of a Savings Unit. A Participant shall
-----------------------------
terminate a Savings Unit if he terminates his participation
in the Plan with respect to a Savings Unit as permitted
pursuant to Section 4.2. The Participant shall continue to
be credited with interest on his Pre-Tax Account applicable
to such Savings Unit as provided under Section 5.1 while he
remains in employment with the Employer. However, no
further Participant contributions to this Plan shall be
made pursuant to Section 5.1 with respect to the Savings
Unit after a Participant terminates such Savings Unit.
(c) Loss of Eligibility. Subject to Section 9.8, in the event
-------------------
that the Participant ceases to be an Eligible Employee by
reason of a change to an employment status which is not
eligible to participate in this Plan, the Participant shall
nevertheless continue participation in this Plan while he
remains in employment with the Employer; however, no
further Participant contributions shall be made to this
Plan pursuant to Section 5.1.
6.3 Disability. In the event that a Participant incurs a Disability,
contributions that otherwise would have been credited to
Participant's Pre-Tax Account in accordance with Section 5.1 will
continue to be credited to such Account out of his disability
payments at the same time and in the same amounts as they would have
been credited if the Participant had not suffered a Disability for
as long as he is eligible to receive monthly disability benefits
equal to 100 percent of his monthly base salary at the time of his
Disability. At such time as the Participant is not eligible to
receive monthly disability benefits equal to 100 percent of his
monthly Base Salary at the time of his Disability, Participant
contributions that otherwise would have been credited to the Pre-Tax
Account of the Participant in accordance with Section 5.1 shall
cease.
If the Participant's Disability ceases and Participant returns
within sixty (60) days thereafter to employment with the Employer in
an employment status which would make him eligible to participate in
this Plan and prior to the end of the original Unit Period, the
Participant shall continue or resume making contributions in
accordance with Section 5.1 until the end of the original Unit
Period.
If the Participant's Disability ceases, the Participant shall be
treated as terminating service with the Employer on the date his
Disability ceases, unless within sixty (60) days thereafter he
returns to employment with Employer in an employment status which
makes him eligible to participate in this Plan.
If a Participant's Disability terminates by reason of his death, the
rights of his Beneficiary shall be determined pursuant to Section
6.4 as if the Participant had not been disabled but rather had been
in service on the date of his death and died on such date. If a
Participant's Disability terminates by reason of attainment of age
65, the Participant shall upon the attainment of age 65 be entitled
to a Retirement Distribution determined pursuant to Section 6.1. If
a Participant's Disability terminates by reason of Retirement, the
Participant shall be treated as having a Retirement on the date
elected by the Participant and shall be entitled to a Retirement
Distribution determined pursuant to Section 6.1.
6.4 Survivor Distribution.
(a) If a Participant dies while in service with the Employer
(or while absent because of Disability) or after Retirement
(or after a termination which is considered a Retirement
pursuant to Section 6.2(a)) but before commencement of
distribution of a Retirement Distribution with respect to a
Savings Unit, the Employer will distribute to the
Participant's Beneficiary such Participant's Retirement
Distribution with respect to such Savings Unit determined
as if the Participant had retired on the day of such
Participant's death. Such distribution shall be made in
accordance with the number of installments which the
Participant's Beneficiary elects for distribution of
Participant's Retirement Distribution. Such election shall
be irrevocable and shall be made prior to January 1 of the
year next following the date of death.
(b) If a Participant dies after the commencement of payment of a
Retirement Distribution with respect to a Savings Unit, the
Employer will distribute to the Participant's Beneficiary the
remaining installments that would have been distributed to the
Participant had the Participant survived.
Section 7 Beneficiary Designation. Each Participant shall have the right,
-----------------------
at any time, to designate any person or persons as his
Beneficiary or Beneficiaries (both primary as well as contingent)
to whom distributions under this Plan shall be made in the event
of his death prior to complete distribution to Participant of the
distributions due him under the Plan. Each Beneficiary
designation shall become effective only when filed in writing
with the Administrative Committee during the Participant's
lifetime on a form prescribed by the Administrative Committee
with written acknowledgment of receipt.
The filing of a new Beneficiary designation form will cancel all
Beneficiary designations previously filed. The spouse of a married
Participant domiciled in a community property jurisdiction shall
join in any designation of Beneficiary or Beneficiaries other than
the spouse.
If a Participant fails to designate a Beneficiary as provided above,
or if all designated Beneficiaries predecease the Participant or die
prior to complete distribution of the Participant's distributions,
then the Administrative Committee shall direct the distribution of
such distributions in accordance with the SBC Rules for Employee
Beneficiary Designations.
Section 8 Discontinuation, Termination, Amendment.
8.1 Company's Right to Discontinue Offering Savings Units. The HRC may
at any time discontinue offerings of additional Savings Units with
respect to any or all future Plan Years. Any such discontinuance
shall have no effect upon the contributions or the terms or
provisions of this Plan as applicable to any then existing Savings
Units.
8.2 Company's Right to Terminate Plan. No Savings Unit may be commenced
after December 31, 2003. The HRC may terminate the Plan at any
earlier time. Termination of the Plan shall mean that (1) there
shall be no further offerings of additional Savings Units with
respect to any future Plan Year: (2) contributions shall
prospectively cease with respect to all Savings Units for the then
Plan Year and thereafter; and (3) all then existing Savings Unit
shall be treated as follows:
The Participant shall receive or continue to receive all
distributions under this Plan at such time as provided in and
pursuant to the terms and conditions of his Agreement(s) and as
described in this Plan; provided, however, any distributions under a
Savings Unit that is not completed due to a termination of the Plan
under this Section 8.2 shall be based upon only the actual
contributions made with respect to such Savings Unit prior to such
termination, and interest on same thereafter.
8.3 Amendment. The Chairman may make non-material changes to the Plan
and/or changes required or made desirable by law. The HRC may at any
time amend the Plan in whole or in part provided, however, that no
amendment, including an amendment to this Section 8, altering to the
detriment of such Participant the distributions described in this
Plan as applicable to a Savings Unit of the Participant, or
decreasing the balance credited to such Participant's Pre-Tax
Account under the Plan, shall be effective without the written
consent of a Participant. For purposes of this Section 8, an
alteration to the detriment of a Participant shall mean a reduction
in the period of time over which payments are distributable under a
Participant's Agreement, or any reduction in the value of a Pre-Tax
Account. Written notice of any amendment shall be given to each
Participant.
Section 9 Miscellaneous.
9.1 Additional Benefit. The reduction of any benefit payable under the
SBC Communications Inc. Pension Benefit Plan, which results from
participation in this Plan, will be restored as an additional
benefit ("make-up piece") under this Plan or under any other
comparable non-qualified savings plan. The Administrative Committee
shall have the option to distribute, in a lump sum, the present
value equivalent of the pension retirement benefit (life annuity)
make-up piece. Notwithstanding the preceding provisions of this
Section 9.1, if all or a portion of the make-up piece is paid
pursuant to SRIP or another non-qualified plan, then such amount
shall not be payable pursuant to this Plan.
9.2 Small Distribution. Notwithstanding any election made by the
Participant, the Administrative Committee will distribute any
Pre-Tax Account in the form of a lump sum distribution if the
Participant's Pre-Tax Account has a value less than $10,000 when
such distribution would otherwise commence.
9.3 Emergency Distribution. In the event that the Administrative
Committee, upon written petition of the Participant, determines in
its sole discretion that the Participant has suffered an
unforeseeable financial emergency, the Employer shall distribute to
the Participant, as soon as practicable following such
determination, a payment from his Pre-Tax Account for one or more
Savings Units as necessary to meet the emergency (the "Emergency
Distribution"). For purposes of this Plan, an unforeseeable
financial emergency is an unexpected need for cash arising from an
illness, casualty loss, sudden financial reversal, or other such
unforeseeable occurrence. Cash needs arising from foreseeable events
such as the purchase of a house or education expenses for children
shall not be considered to be the result of an unforeseeable
financial emergency. Upon receipt of an Emergency Benefit, except
for mandatory savings as required pursuant to Section 4.1, a
Participant shall not be permitted to commence a new Savings Unit
until one whole calendar year has elapsed.
9.4 Commencement of Payments. Except as otherwise provided in this Plan,
commencement of a distribution under this Plan shall begin sixty
(60) days following the event which entitles a Participant (or a
Beneficiary) to such distribution, or at such earlier date as may be
determined by the Administrative Committee or the HRC.
9.5 Withholding. Upon any distribution hereunder, payment shall be
reduced by the minimum amount necessary to satisfy Federal, state or
local taxes required by law to be withheld with respect to such
distribution.
9.6 Transfer to Bellcore. If a Participant transfers to Bellcore, all of
the Participant's Savings Units shall automatically be frozen upon
such transfer, unless otherwise determined by the Administrative
Committee. No further Participant contributions shall be made
subsequent to the transfer. During the period of employment at
Bellcore (for a period not to exceed five (5) years), the
Participant shall continue to be credited with interest on his
Pre-Tax Accounts as provided under Section 5.1 and all distributions
shall continue to be payable to the Participant or the Participant's
Beneficiaries in accordance with Section 6 hereof. If the
Participant has not resumed employment with the Employer in an
employment status which makes him eligible to participate in this
Plan within five (5) years from date of transfer, a Termination
Distribution based on the amounts credited to the Participant's
Pre-Tax Accounts shall be paid upon termination of employment with
Bellcore or the expiration of such five (5) year period, whichever
is earlier.
9.7 Leave of Absence. If a Participant absents himself from employment
on a formally granted leave of absence (i.e., the absence is with
formal permission in order to prevent a break in the continuity of
the Employee's term of employment, which permission is granted in
conformity with the rules of the Employer which employs the
individual), all of the Participant's Savings Units shall
automatically be frozen upon such leave of absence, unless otherwise
determined by the Administrative Committee. No Participant
contributions shall be made during the leave of absence. However,
during the leave of absence, the Participant shall continue to be
credited with interest on his Pre-Tax Accounts, as provided under
Section 5.1 and all distributions shall continue to be payable to
the Participant and his Beneficiaries in accordance with Section 6
hereof. If the participant returns to employment with the Employer
in an employment status which makes him eligible to participate in
this Plan before completion of or immediately upon the expiration of
the leave of absence, Participant contributions will resume until
the end of the original Unit Period. If the Participant has not
resumed employment with the Employer in an employment status which
makes him eligible to participate in this Plan before completion of
or immediately upon the expiration of the leave of absence, a
Termination Distribution based on the amounts credited to the
Participant's Pre-Tax Accounts shall be paid to the Participant.
This Section 9.7 shall not apply with respect to any period during
which a Participant is suffering from a Disability, and such period
of Disability shall not be included under this Section 9.7 as a
portion of a period of leave of absence.
9.8 Ineligible Participant. Notwithstanding any other provisions of this
Plan to the contrary, if any Participant is determined not to be a
"management or highly compensated employee" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended
(ERISA) or Regulations thereunder, such Participant will not be
eligible to participate in this Plan and shall receive an immediate
lump sum distribution of his Pre-Tax Accounts. Upon such payment no
other distribution shall thereafter be payable under this Plan
either to the Participant or any Beneficiary of the Participant,
except as provided under Section 9.1.
9.9 Unsecured General Creditor. Participants and their Beneficiaries,
heirs, successors, and assigns shall have no legal or equitable
rights, interest, or claims in any property or assets of Employer.
No assets of Employer shall be held under any trust for the benefit
of Participants, their Beneficiaries, heirs, successors, or assigns,
or held in any way as collateral security for the fulfilling of the
obligations of Employer under this Plan. Any and all of the
Employer's assets shall be, and remain, the general, unpledged,
unrestricted assets of Employer. Employer's obligation under the
Plan shall be merely that of an unfunded and unsecured promise of
Employer to pay money under the Plan in the future.
9.10 Offset. If a Participant becomes entitled to a distribution under
the Plan, the Employer may offset against the amount otherwise
distributable, any claims to reimbursement for intentional
wrongdoing by the Participant against the Employer or an affiliate.
Such determination shall be made by the Administrative Committee in
its sole discretion.
9.11 Non-Assignability. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge,
anticipate, mortgage, or otherwise encumber, transfer, hypothecate
or convey in advance of actual receipt, the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which
are, expressly declared to be unassignable and non-transferable. No
part of the amounts payable shall, prior to actual distribution, be
subject to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant or
any other person, nor be transferable by operation of law in the
event of a Participant's or any other person's bankruptcy or
insolvency.
9.12 Employment Not Guaranteed. Nothing contained in this Plan nor any
action taken hereunder shall be construed as a contract of
employment or as giving any Employee any right to be retained in the
employ of the Employer or to serve as a director.
9.13 Gender, Singular and Plural. All pronouns and any variations thereof
shall be deemed to refer to the masculine or feminine, as the
identity of the person or persons may require. As the context may
require, the singular may be read as the plural and the plural as
the singular.
9.14 Captions. The captions of the articles, sections, and paragraphs of
this Plan are for convenience only and shall not control nor affect
the meaning or construction of any of its provisions.
9.15 Applicable Law. This Plan shall be governed and construed in
accordance with the laws of the State of Texas.
9.16 Validity. In the event any provision of this Plan is held invalid,
void, or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of this Plan.
9.17 Notice. Any notice or filing required or permitted to be given to
the Administrative Committee under the Plan shall be sufficient if
in writing and hand delivered, or sent by registered or certified
mail, to the principal office of the Employer, directed to the
attention of the Senior Executive Vice President-Human Resources of
the Employer. Such notice shall be deemed given on the date of
delivery or, if delivery is made by mail, on the date shown on the
postmark on the receipt for registration or certification.
9.18 Successors and Assigns. This Plan shall be binding upon the Company
and its successors and assigns.
9.19 Trust Fund. The Employer shall be responsible for the payment of all
benefits provided under the Plan. At its discretion, the Company may
establish one or more trusts, for the purpose of providing for the
payment of such benefits. Such trust or trusts may be irrevocable,
but the assets thereof shall be subject to the claims of the
Employer's creditors. To the extent any benefits provided under the
Plan are actually paid from any such trust, the Employer shall have
no further obligation with respect thereto, but to the extent not so
paid, such benefits shall remain the obligation of, and shall be
paid by, the Employer.
<PAGE>
EXHIBIT (1)
SBC OFFICER RETIREMENT SAVINGS PLAN ("PLAN") ENROLLMENT FORM
1994 ENROLLMENT FORM DUE DATE: 12/15/93
Return of this Form is
Required.
Name __________________________________ Social Security Number
- -----------------
Please Print
Officer hereby agrees to contribute a portion of his/her monthly Base
Salary, effective January 1, 1994, as shown below, the terms of the
Plan to govern and control (all elections are irrevocable):
Pre-Tax Amount (deferral percentage) = __________% (Note 1 & 2)
The distribution of this Unit including my contributions and interest thereon
shall be as follows (Note 3):
______ I elect to defer making my choice as to the number of payments for my
Retirement Distribution which shall commence in January of the year
following my Retirement until no later than the last day of the
calendar year in which my Retirement takes place.
______ I elect to receive my Retirement Distribution commencing in January of
the year following my Retirement in (specify number 1,60,120, or 180)
monthly installments.
Note 1: This is your pre-tax deferral percentage for this Plan only. This
does not affect deferrals related to your deferred compensation
plans' Units or your Stock Savings Plan Units. The percentage will
apply to your full Base Salary before deferrals to other plans.
Note 2: Only Base Salary above $250,000 can be deferred.
Note 3: Withholding on all distributions will be at the minimum rate
prescribed by law.
ACCEPTED AND AGREED:
BY THE COMPANY: BY OFFICER:
By__________________________________ ____________________ ___________
Its Senior Executive Vice President- Signature Date
Human Resources
EXHIBIT 10r
LOGO
SBC Communications Inc.
1996 STOCK AND INCENTIVE PLAN
Plan Effective: January 1, 1996
As amended through: November 21, 1997
<PAGE>
TABLE OF CONTENTS
Article 1 Establishment and Purpose..........................................1
1.1 Establishment of the Plan.............................................1
1.2 Purpose of the Plan...................................................1
1.3 Effective Date of the Plan............................................1
Article 2 Definitions........................................................1
Article 3 Administration.....................................................5
3.1 The Committee.........................................................5
3.2 Authority of the Committee............................................6
Article 4 Shares Subject to the Plan.........................................6
4.1 Number of Shares......................................................6
4.2 Lapsed Awards.........................................................7
4.3 Adjustments in Authorized Plan Shares.................................7
Article 5 Eligibility and Participation......................................7
5.1 Eligibility...........................................................7
5.2 Actual Participation..................................................8
Article 6 Stock Options......................................................8
6.1 Grant of Options......................................................8
6.2 Form of Issuance......................................................8
6.3 Exercise Price........................................................9
6.4 Duration of Options...................................................9
6.5 Vesting of Options....................................................9
6.6 Exercise of Options...................................................9
6.7 Payment...............................................................9
6.8 Termination of Employment............................................11
6.9 Employee Transfers...................................................12
6.10 Restrictions on Exercise and Transfer of Options.....................12
6.11 Competition..........................................................13
Article 7 Restricted Stock..................................................13
7.1 Grant of Restricted Stock............................................13
7.2 Restricted Stock Agreement...........................................13
7.3 Transferability......................................................13
7.4 Other Restrictions...................................................14
7.5 Removal of Restrictions..............................................14
7.6 Voting Rights, Dividends and Other Distributions.....................14
7.7 Termination of Employment Due to Death or Disability.................14
7.8 Termination of Employment for Other Reasons..........................15
7.9 Employee Transfers...................................................15
Article 8 Performance Units and Performance Shares..........................15
8.1 Grants of Performance Units and Performance Shares...................15
8.2 Value of Performance Shares and Units................................15
8.3 Performance Period...................................................16
8.4 Performance Goals....................................................16
8.5 Dividend Equivalents on Performance Shares...........................17
8.6 Form and Timing of Payment of Performance Units and Performance Shares18
8.7 Termination of Employment Due to Death, Disability, or Retirement....19
8.8 Termination of Employment for Other Reasons..........................19
8.9 Termination of Employment for Cause..................................19
8.10 Nontransferability...................................................19
Article 9 Beneficiary Designation...........................................20
Article 10 Deferrals.......................................................20
10.1 Deferrals............................................................20
10.2 Deferral of Performance Unit and Performance Share Distributions.....20
Article 11 Employee Matter.................................................21
11.1 Employment Not Guaranteed............................................21
11.2 Participation........................................................21
11.3 Claims and Appeals...................................................21
Article 12 Change in Control...............................................22
Article 13 Amendment, Modification, and Termination........................22
13.1 Amendment, Modification, and Termination.............................22
13.2 Awards Previously Granted............................................22
Article 14 Withholding.....................................................22
14.1 Tax Withholding......................................................22
14.2 Share Withholding....................................................23
Article 15 Successors......................................................23
Article 16 Legal Construction..............................................23
16.1 Gender and Number....................................................23
16.2 Severability.........................................................23
16.3 Requirements of Law..................................................24
16.4 Securities Law Compliance............................................24
16.5 Governing Law........................................................24
<PAGE>
SBC COMMUNICATIONS INC.
1996 STOCK AND INCENTIVE PLAN
Article 1 Establishment and Purpose.
1.1 Establishment of the Plan. SBC Communications Inc., a Delaware
corporation (the "Company" or "SBC"), hereby establishes an
incentive compensation plan (the "Plan"), as set forth in this
document.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the
success and enhance the value of the Company by linking the personal
interests of Participants to those of the Company's shareowners, and
by providing Participants with an incentive for outstanding
performance.
The Plan is further intended to attract and retain the services
of Participants upon whose judgment, interest, and special efforts
the successful operation of SBC and its subsidiaries is dependent.
1.3 Effective Date of the Plan. The Plan shall become effective on
January 1, 1996; however, grants may be made before that time
subject to becoming effective on or after that date. During the
first year this Plan is effective, Awards shall be issued only to
the extent the potential payout of Shares shall not exceed 10% of
the Shares approved for issuance under this Plan.
Article 2 Definitions.
Whenever used in the Plan, the following terms shall have the
meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized:
(a) "Award" means, individually or collectively, a grant under
this Plan of Nonqualified Stock Options, Incentive Stock
Options, Restricted Stock, Performance Units, or
Performance Shares.
(b) "Award Agreement" means an agreement which may be entered
into by each Participant and the Company, setting forth
the terms and provisions applicable to Awards granted to
Participants under this Plan.
(c) "Board" or "Board of Directors" means the SBC Board of
Directors.
(d) "Cause" shall mean willful and gross misconduct on the
part of an Employee that is materially and demonstrably
detrimental to the Company or any Subsidiary as determined
by the Committee in its sole discretion.
(e) "Change in Control" shall be deemed to have occurred
if (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other
than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the
shareowners of the Company in substantially the same
proportions as their ownership of stock of the
Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company
representing twenty percent (20%) or more of the
total voting power represented by the Company's then
outstanding voting securities, or (ii) during any
period of two (2) consecutive years, individuals who
at the beginning of such period constitute the Board
of Directors of the Company and any new Director
whose election by the Board of Directors or
nomination for election by the Company's shareowners
was approved by a vote of at least two-thirds (2/3)
of the Directors then still in office who either
were Directors at the beginning of the period or
whose election or nomination for election was
previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the
shareowners of the Company approve a merger or
consolidation of the Company with any other
corporation, other than a merger or consolidation
which would result in the voting securities of the
Company outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity) at least eighty
percent (80%) of the total voting power represented
by the voting securities of the Company or such
surviving entity outstanding immediately after such
merger or consolidation, or the shareowners of the
Company approve a plan of complete liquidation of
the Company or an agreement for the sale or
disposition by the Company of all or substantially
all the Company's assets.
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" means the committee or committees, as
specified in Article 3, appointed by the Board to
administer the Plan with respect to grants of Awards.
(h) "Director" means any individual who is a member of the SBC
Board of Directors.
(i) "Disability" shall mean the Participant's inability to
perform the Participant's normal Employment functions due
to any medically determinable physical or mental
disability, which can last or has lasted 12 months or is
expected to result in death.
(j) "Employee" means any management employee of the Company or
of one of the Company's Subsidiaries. "Employment" means
the employment of an Employee by the Company or one of its
Subsidiaries. Directors who are not otherwise employed by
the Company shall not be considered Employees under this
Plan.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor Act
thereto.
(l) "Exercise Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as
determined by the Committee.
(m) "Fair Market Value" shall mean the closing price of
Shares on the relevant date, or (if there were no
sales on such date) the next preceding trading date,
all as reported in the New York Stock Exchange
Composite Trading listings, or in a similar report
selected by the Committee. A trading day is any day
that the Stock is traded on the New York Stock
Exchange.
(n) "Incentive Stock Option" or "ISO" means an option to
purchase Shares from SBC, granted under this Plan, which
is designated as an Incentive Stock Option and is intended
to meet the requirements of Section 422 of the Code.
(o) "Insider" shall mean an Employee who is, on the relevant
date, an officer, director, or ten percent (10%)
beneficial owner of the Company, as those terms are
defined under Section 16 of the Exchange Act.
(p) "Key Executive Officer Short Term Award" means a
Performance Unit expressed in dollars.
(q) "Nonqualified Stock Option" or "NQSO" means the option to
purchase Shares from SBC, granted under this Plan, which
is not intended to be an Incentive Stock Option.
(r) "Option" or "Stock Option" shall mean an Incentive Stock
Option or a Nonqualified Stock Option, and shall include a
Restoration Option.
(s) "Participant" means a person who holds an outstanding
Award granted under the Plan.
(t) "Performance Unit" and "Performance Share" shall each mean
an Award granted to an Employee pursuant to Article 8
herein.
(u) "Plan" means this 1996 Stock and Incentive Plan. The Plan
may also be referred to as the "SBC 1996 Stock and
Incentive Plan" or as the "SBC Communications Inc. 1996
Stock and Incentive Plan."
(v) "Restricted Stock" means an Award of Stock granted to an
Employee pursuant to Article 7 herein.
(w) "Restriction Period" means the period during which Shares
of Restricted Stock are subject to restrictions or
conditions under Article 7.
(x) "Retirement" or to "Retire" shall mean the
termination of a Participant's Employment with the
Company or one of its Subsidiaries, for any reason
other than death, Disability or for Cause, on or
after the earlier of the following dates, or as
otherwise provided by the Committee: (1) the date
the Participant would be eligible to retire with an
immediate pension under the rules of the SBC
Supplemental Retirement Income Plan, whether or not
actually a participant in such plan; or (2) the date
the Participant has attained one of the following
combinations of age and service at termination of
employment on or after April 1, 1997, except as
otherwise indicated below:
Net Credited Service Age
10 Years of more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
With respect to a Participant who is granted an EMP
Service Pension under and pursuant to the provisions
of the SBC
Pension Benefit Plan - Nonbargained Program upon
termination of employment, the terms "Retirement" or to
"Retire" shall include such Participant's termination of
employment.
(y) "Rotational Work Assignment Company ("RWAC") shall mean
any entity with which SBC Communications Inc. or any of
its Subsidiaries may enter into an agreement to provide an
employee for a rotational work assignment.
(z) "Shares" or "Stock" means the shares of common stock of
the Company.
(aa) "Subsidiary" shall mean any corporation in which the
Company owns directly, or indirectly through subsidiaries,
more than fifty percent (50%) of the total combined voting
power of all classes of Stock, or any other entity
(including, but not limited to, partnerships and joint
ventures) in which the Company owns more than fifty percent
(50%) of the combined equity thereof.
(bb) "Window Period" means the period beginning on the third
business day following the date of public release of the
Company's quarterly sales and earnings information, and
ending on the twelfth business day following such date.
Article 3 Administration.
3.1 The Committee. Administration of the Plan shall be bifurcated
as follows:
(a) With respect to Insiders, the Plan and all Awards
hereunder shall be administered only by the Human
Resources Committee of the Board or such other
Committee as may be appointed by the Board for this
purpose (the "Disinterested Committee"), where each
Director on such Disinterested Committee is a
"Disinterested Person" (or any successor designation
for determining who may administer plans,
transactions or awards exempt under Section 16(b) of
the Exchange Act), as that term is used in Rule
16b-3 under the Exchange Act, as that rule may be
modified from time to time.
(b) The Disinterested Committee and such other Committee
as the Board may create, if any, specifically to
administer the Plan with respect to non-Insiders
(the "Non-Insider Committee") shall each have full
authority to administer the Plan and all Awards
hereunder with respect to all persons who are not
Insiders, except as otherwise provided herein or by
the Board. Either Committee may be replaced by the
Board at any time.
3.2 Authority of the Committee. The Committee shall have full power
except as limited by law and subject to the provisions herein, to
select the recipients of Awards, to determine the size and types of
Awards; to determine the terms and conditions of such Awards in a
manner consistent with the Plan; to construe and interpret the Plan
and any agreement or instrument entered into under the Plan; to
establish, amend, or waive rules and regulations for the Plan's
administration; and (subject to the provisions of Article 13 herein)
to amend the terms and conditions of any outstanding Award to the
extent such terms and conditions are within the discretion of the
Committee as provided in the Plan. Further, the Committee shall make
all other determinations which may be necessary or advisable for the
administration of the Plan.
No Award other than Restoration Options may be made under the
Plan after December 31, 2010.
All determinations and decisions made by the Committee pursuant
to the provisions of the Plan and all related orders or resolutions
of the Board shall be final, conclusive, and binding on all persons,
including the Company, its stockholders, Employees, Participants,
and their estates and beneficiaries.
Subject to the terms of this Plan, the Committee is authorized,
and shall not be limited in its discretion, to use any of the
Performance Criteria specified herein in its determination of Awards
under this Plan.
Article 4 Shares Subject to the Plan.
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3
herein, the number of Shares available for grant under the Plan
shall not exceed 30 million Shares of Stock. No more than 10% of the
Shares approved for issuance under this Plan may be Shares of
Restricted Stock. No more than 40% of the Shares approved for
issuance under this Plan may be issued to Participants as a result
of Performance Share or Restricted Stock Awards. The Shares granted
under this Plan may be either authorized but unissued or reacquired
Shares. The Disinterested Committee shall have full discretion to
determine the manner in which Shares available for grant are counted
in this Plan.
Without limiting the discretion of the Committee under this
section, unless otherwise provided by the Committee, the following
rules will apply for purposes of the determination of the number of
Shares available for grant under the Plan or compliance with the
foregoing limits:
(a) The grant of a Stock Option or a Restricted Stock
Award shall reduce the Shares available for grant
under the Plan by the number of Shares subject to
such Award. However, to the extent the Participant
uses previously owned Shares to pay the Exercise
Price or any taxes, or Shares are withheld to pay
taxes, these Shares shall be available for regrant
under the Plan.
(b) With respect to Performance Shares, the number of
Performance Shares granted under the Plan shall be
deducted from the number of Shares available for
grant under the Plan. The number of Performance
Shares which cannot be, or are not, converted into
Shares and distributed (including deferrals) to the
Participant (after any applicable tax withholding)
following the end of the Performance Period shall
increase the number of Shares available for regrant
under the Plan by an equal amount.
(c) With respect to Performance Units representing a fixed
dollar amount that may only be settled in cash, the
Performance Units Award shall not affect the number of
Shares available under the Plan.
4.2 Lapsed Awards. If any Award granted under this Plan is canceled,
terminates, expires, or lapses for any reason, Shares subject to
such Award shall be again available for the grant of an Award under
the Plan.
4.3 Adjustments in Authorized Plan Shares. In the event of any merger,
reorganization, consolidation, recapitalization, separation,
liquidation, Stock dividend, split-up, Share combination, or other
change in the corporate structure of the Company affecting the
Shares, an adjustment shall be made in the number and class of
Shares which may be delivered under the Plan (including individual
limits), and in the number and class of and/or price of Shares
subject to outstanding Awards granted under the Plan, and/or the
number of outstanding Options, Shares of Restricted Stock, and
Performance Shares constituting outstanding Awards, as may be
determined to be appropriate and equitable by the Committee, in its
sole discretion, to prevent dilution or enlargement of rights.
Article 5 Eligibility and Participation.
5.1 Eligibility. All management Employees are eligible to participate in
this Plan.
5.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible
Employees, those to whom Awards shall be granted and shall determine
the nature and amount of each Award. No Employee is entitled to
receive an Award unless selected by the Committee.
Article 6 Stock Options.
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Employees at any time and from time to
time, and under such terms and conditions, as shall be determined by
the Committee. The Committee shall have discretion in determining
the number of Shares subject to Options granted to each Employee;
provided, however, that the maximum number of Shares subject to
Options which may be granted to any single Employee during any
calendar year shall not exceed 2% of the Shares approved for
issuance under this Plan. The Committee may grant ISOs, NQSOs, or a
combination thereof; provided, however, that no ISO may be issued
after January 1, 2006. The Committee may authorize the automatic
grant of additional Options ("Restoration Options") when a
Participant exercises already outstanding Options, or options
granted under a prior option plan of the Company, on such terms and
conditions as it shall determine. Unless otherwise provided by the
Committee, the number of Restoration Options granted to a
Participant with respect to the exercise of an option (including an
Option under this Plan) shall not exceed the number of Shares
delivered by the Participant in payment of the Exercise Price of
such option, and/or in payment of any tax withholding resulting from
such exercise, and any Shares which are withheld to satisfy
withholding tax liability arising out of such exercise. A
Restoration Option shall have an Exercise Price of not less than
100% of the per Share Fair Market Value on the date of grant of such
Restoration Option, and shall be subject to all the terms and
conditions of the original grant, including the expiration date, and
such other terms and conditions as the Committee in its sole
discretion shall determine.
6.2 Form of Issuance. Each Option grant may be issued in the form of an
Award Agreement and/or may be recorded on the books and records of
the Company for the account of the Participant. If an Option is not
issued in the form of an Award Agreement, then the Option shall be
deemed granted as determined by the Committee. The terms and
conditions of an Option shall be set forth in the Award Agreement,
in the notice of the issuance of the grant, or in such other
documents as the Committee shall determine. Such terms and
conditions shall include the Exercise Price, the duration of the
Option, the number of Shares to which an Option pertains (unless
otherwise provided by the Committee, each Option may be exercised to
purchase one Share), and such other provisions as the Committee
shall determine, including, but not limited to whether the Option is
intended to be an ISO or a NQSO.
6.3 Exercise Price. Unless a greater Exercise Price is determined by the
Committee, the Exercise Price for each Option Awarded under this
Plan shall be equal to one hundred percent (100%) of the Fair Market
Value of a Share on the date the Option is granted.
6.4 Duration of Options. Each Option shall expire at such time as the
Committee shall determine at the time of grant (which duration may
be extended by the Committee); provided, however, that no Option
shall be exercisable later than the tenth (10th) anniversary date of
its grant.
6.5 Vesting of Options. Options shall vest at such times and under such
terms and conditions as determined by the Committee; provided,
however, unless a later vesting period is provided by the Committee
at or before the grant of an Option, one-third of the Options will
vest on each of the first three anniversaries of the grant; if one
Option remains after equally dividing the grant by three, it will
vest on the first anniversary of the grant, if two Options remain,
then one will vest on each of the first two anniversaries. The
Committee shall have the right to accelerate the vesting of any
Option; however, the Chairman of the Board or the Senior Vice
President-Human Resources, or their respective successors, or such
other persons designated by the Committee, shall have the authority
to accelerate the vesting of Options for any Participant who is not
an Insider.
6.6 Exercise of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve, which
need not be the same for each grant or for each Participant.
Options shall be exercised by providing notice to the designated
agent selected by the Company (if no such agent has been designated,
then to the Company), in the manner and form determined by the
Company, which notice shall be irrevocable, setting forth the exact
number of Shares with respect to which the Option is being exercised
and including with such notice payment of the Exercise Price. When
Options have been transferred, the Company or its designated agent
may require appropriate documentation that the person or persons
exercising the Option, if other than the Participant, has the right
to exercise the Option. No Option may be exercised with respect to a
fraction of a Share.
6.7 Payment. The Exercise Price shall be paid in full at the time of
exercise. No Shares shall be issued or transferred until full
payment has been received therefor.
Payment may be made:
(a) in cash, or
(b) unless otherwise provided by the Committee at any time,
and subject to such additional terms and conditions and/or
modifications as the Committee or the Company may impose
from time to time, and further subject to suspension or
termination of this provision by the Committee or Company
at any time, by:
(i) delivery of Shares of Stock owned by the
Participant in partial (if in partial payment,
then together with cash) or full payment;
provided, however, as a condition to paying any
part of the Exercise Price in Stock, at the
time of exercise of the Option, the Participant
must establish to the satisfaction of the
Company that the Stock tendered to the Company
must have been held by the Participant for a
minimum of six (6) months preceding the tender;
or
(ii) if the Company has designated a stockbroker to act as
the Company's agent to process Option exercises,
issuance of an exercise notice to such stockbroker
together with instructions irrevocably instructing
the stockbroker: (A) to immediately sell (which shall
include an exercise notice that becomes effective
upon execution of a limit order) a sufficient portion
of the Shares to pay the Exercise Price of the
Options being exercised and the required tax
withholding, and (B) to deliver on the settlement
date the portion of the proceeds of the sale equal to
the Exercise Price and tax withholding to the
Company. In the event the stockbroker sells any
Shares on behalf of a Participant, the stockbroker
shall be acting solely as the agent of the
Participant, and the Company disclaims any
responsibility for the actions of the stockbroker in
making any such sales. No Stock shall be issued until
the settlement date and until the proceeds (equal to
the Option Price and tax withholding) are paid to the
Company.
If payment is made by the delivery of Shares of Stock, the value
of the Shares delivered shall be equal to the Fair Market Value of
the Shares on the day preceding the date of exercise of the Option.
Restricted Stock may not be used to pay the Option Price.
6.8 Termination of Employment.
Unless otherwise provided by the Committee, the following
limitations on exercise of Options shall apply upon termination of
Employment:
(a) Termination by Death or Disability. In the event
the Employment of a Participant shall terminate by
reason of death or Disability, all outstanding
Options granted to that Participant shall
immediately vest as of the date of termination of
Employment and may be exercised, if at all, no more
than three (3) years from the date of the
termination of Employment, unless the Options, by
their terms, expire earlier. However, in the event
the Participant was eligible to Retire at the time
of termination of Employment, notwithstanding the
foregoing, the Options may be exercised, if at all,
no more than five (5) years from the date of the
termination of Employment, unless the Options, by
their terms, expire earlier.
(b) Termination for Cause. If the Employment of a Participant
shall be terminated by the Company for Cause, all
outstanding Options held by the Participant shall
immediately be forfeited to the Company and no additional
exercise period shall be allowed, regardless of the vested
status of the Options.
(c) Retirement or Other Termination of Employment. If
the Employment of a Participant shall terminate for
any reason other than the reasons set forth in (a)
or (b), above, all outstanding Options which are
vested as of the effective date of termination of
Employment may be exercised, if at all, no more than
five (5) years from the date of termination of
Employment if the Participant is eligible to Retire,
or one (1) year from the date of the termination of
Employment if the Participant is not eligible to
Retire, as the case may be, unless in either case
the Options, by their terms, expire earlier. In the
event of the death of the Participant after
termination of Employment, this paragraph (c) shall
still apply and not paragraph (a), above.
(d) Options not Vested at Termination. Except as provided in
paragraph (a), above, all Options held by the Participant
which are not vested on or before the effective date of
termination of Employment shall immediately be forfeited
to the Company (and shall once again become available for
grant under the Plan).
(e) Notwithstanding the foregoing, the Committee may, in its
sole discretion, establish different terms and conditions
pertaining to the effect of termination of Employment, but
no such modification shall shorten the terms of Options
issued prior to such modification.
6.9 Employee Transfers. For purposes of the Plan, transfer of employment
of a Participant between the Company and any one of its Subsidiaries
(or between Subsidiaries) or between the Company or a Subsidiary and
a RWAC, to the extent the period of employment at a RWAC is equal to
or less than five (5) years, shall not be deemed a termination of
Employment. Provided, however, for purposes of this Article 6,
termination of employment with a RWAC without a concurrent transfer
to the Company or any of its Subsidiaries shall be deemed a
termination of Employment as that term is used herein. Similarly,
termination of an entity's status as a Subsidiary or as a RWAC shall
be deemed a termination of Employment of any Participants employed
by such Subsidiary or RWAC.
6.10 Restrictions on Exercise and Transfer of Options. Unless otherwise
provided by the Committee:
(a) During the Participant's lifetime, the Participant's
Options shall be exercisable only by the Participant
or by the Participant's guardian or legal
representative. After the death of the Participant,
except as otherwise provided by SBC's Rules for
Employee Beneficiary Designations, an Option shall
only be exercised by the holder thereof (including,
but not limited to, an executor or administrator of
a decedent's estate) or his or her guardian or legal
representative.
(b) No Option shall be transferable except: (i) in the case of
the Participant, only upon the Participant's death and in
accordance with the SBC Rules for Employee Beneficiary
Designations; and (ii) in the case of any holder after the
Participant's death, only by will or by the laws of
descent and distribution.
6.11 Competition. Notwithstanding anything in this Article 6 to the
contrary, prior to a Change in Control, in the event the Committee
determines, in its sole discretion, that a Participant is engaging
in competitive activity with the Company, any Subsidiary, or any
business in which any of the foregoing have a substantial interest
(the "SBC Businesses"), the Committee may cancel any Option granted
to such Participant, whether or not vested, in whole or in part.
Such cancellation shall be effective as of the date specified by the
Committee. Competitive activity shall mean any business or activity
in the same geographical market where a substantially similar
business activity is being carried on by an SBC Business, including,
but not limited to, representing or providing consulting services to
any person or entity that is engaged in competition with an SBC
Business or that takes a position adverse to an SBC Business.
However, competitive activity shall not include, among other things,
owning a nonsubstantial interest as a shareholder in a competing
business.
The determination of whether a Participant has engaged in
competitive activity with the Company shall be determined by the
Committee in good faith and in its sole discretion.
Article 7 Restricted Stock.
7.1 Grant of Restricted Stock. Subject to the terms and provisions of
the Plan, the Committee, at any time and from time to time, may
grant Shares of Restricted Stock to eligible Employees in such
amounts and upon such terms and conditions as the Committee shall
determine. In addition to any other terms and conditions imposed by
the Committee, vesting of Restricted Stock may be conditioned upon
the attainment of Performance Goals based on Performance Criteria in
the same manner as provided in Section 8.4, herein, with respect to
Performance Shares. No Employee may receive, in any calendar year,
in the form of Restricted Stock more than one-third of 1% of the
Shares approved for issuance under this Plan.
7.2 Restricted Stock Agreement. The Committee may require, as a
condition to an Award, that a recipient of a Restricted Stock Award
enter into a Restricted Stock Award Agreement, setting forth the
terms and conditions of the Award. In lieu of a Restricted Stock
Award Agreement, the Committee may provide the terms and conditions
of an Award in a notice to the Participant of the Award, on the
Stock certificate representing the Restricted Stock, in the
resolution approving the Award, or in such other manner as it deems
appropriate.
7.3 Transferability. Except as otherwise provided in this Article 7, the
Shares of Restricted Stock granted herein may not be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable Restriction Period
established by the Committee, which shall not be less than a period
of three years.
7.4 Other Restrictions. The Committee shall impose such other conditions
and/or restrictions on any Shares of Restricted Stock granted
pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated
purchase price for each Share of Restricted Stock and/or
restrictions under applicable Federal or state securities laws; and
may legend the certificates representing Restricted Stock to give
appropriate notice of such restrictions.
The Company shall also have the right to retain the certificates
representing Shares of Restricted Stock in the Company's possession
until such time as all conditions and/or restrictions applicable to
such Shares have been satisfied.
7.5 Removal of Restrictions. Except as otherwise provided in this
Article 7, Shares of Restricted Stock covered by each Restricted
Stock grant made under the Plan shall become freely transferable by
the Participant after the last day of the Restriction Period and
completion of all conditions to vesting, if any. However, unless
otherwise provided by the Committee, the Committee, in its sole
discretion, shall have the right to immediately waive all or part of
the restrictions and conditions with regard to all or part of the
Shares held by any Participant at any time.
7.6 Voting Rights, Dividends and Other Distributions. During the
Restriction Period, Participants holding Shares of Restricted Stock
granted hereunder may exercise full voting rights and shall receive
all regular cash dividends paid with respect to such Shares. Except
as provided in the following sentence, in the sole discretion of the
Committee, other cash dividends and other distributions paid to
Participants with respect to Shares of Restricted Stock may be
subject to the same restrictions and conditions as the Shares of
Restricted Stock with respect to which they were paid. If any such
dividends or distributions are paid in Shares, the Shares shall be
subject to the same restrictions and conditions as the Shares of
Restricted Stock with respect to which they were paid.
7.7 Termination of Employment Due to Death or Disability. In the event
the Employment of a Participant shall terminate by reason of death
or Disability, all Restriction Periods and all restrictions imposed
on outstanding Shares of Restricted Stock held by the Participant
shall immediately lapse and the Restricted Stock shall immediately
become fully vested as of the date of termination of Employment.
7.8 Termination of Employment for Other Reasons. If the Employment of a
Participant shall terminate for any reason other than those
specifically set forth in Section 7.7 herein, all Shares of
Restricted Stock held by the Participant which are not vested as of
the effective date of termination of Employment immediately shall be
forfeited and returned to the Company.
7.9 Employee Transfers. For purposes of the Plan, transfer of employment
of a Participant between the Company and any one of its Subsidiaries
(or between Subsidiaries) or between the Company or a Subsidiary and
a RWAC, to the extent the period of employment at a RWAC is equal to
or less than five (5) years, shall not be deemed a termination of
Employment. Provided, however, for purposes of this Article,
termination of employment with a RWAC without a concurrent transfer
to the Company or any of its Subsidiaries shall be deemed a
termination of Employment as that term is used herein. Similarly,
termination of an entity's status as a Subsidiary or as a RWAC shall
be deemed a termination of Employment of any Participants employed
by such Subsidiary or RWAC.
Article 8 Performance Units and Performance Shares.
8.1 Grants of Performance Units and Performance Shares. Subject to the
terms of the Plan, Performance Shares and Performance Units may be
granted to eligible Employees at any time and from time to time, as
determined by the Committee. The Committee shall have complete
discretion in determining the number of Performance Units and/or
Performance Shares Awarded to each Participant.
8.2 Value of Performance Shares and Units.
(a) A Performance Share is equivalent in value to a Share of
Stock. In any calendar year, no individual may be Awarded
Performance Shares having a potential payout of Shares of
Stock exceeding two-thirds of 1% of the Shares approved
for issuance under this Plan.
(b) A Performance Unit shall be equal in value to a
fixed dollar amount determined by the Committee. In
any calendar year, no individual may be Awarded
Performance Units having a potential payout
equivalent exceeding the Fair Market Value of
two-thirds of 1% of the Shares approved for issuance
under this Plan. The number of Shares equivalent to
the potential payout of a Performance Unit shall be
determined by dividing the maximum cash payout of
the Award by the Fair Market Value per Share on the
effective date of the grant. In the event the
Committee denominates a Performance Unit Award in
dollars instead of Performance Units, the Award may
be referred to as a Key Executive Officer Short Term
Award. In all other respects, the Key Executive
Officer Short Term Award will be treated in the same
manner as Performance Units under this Plan.
8.3 Performance Period. The Performance Period for Performance Shares
and Performance Units is the period over which the Performance Goals
are measured. The Performance Period is set by the Committee for
each Award; however, in no event shall an Award have a Performance
Period of less than one year.
8.4 Performance Goals. For each Award of Performance Shares or
Performance Units, the Committee shall establish performance
objectives ("Performance Goals") for the Company, its Subsidiaries,
and/or divisions of any of foregoing, based on the Performance
Criteria and other factors set forth in (a) through (d), below.
Performance Goals shall include payout tables, formulas or other
standards to be used in determining the extent to which the
Performance Goals are met, and, if met, the number of Performance
Shares and/or Performance Units which would be converted into Stock
and/or cash (or the rate of such conversion) and distributed to
Participants in accordance with Section 8.6. All Performance Shares
and Performance Units which may not be converted under the
Performance Goals or which are reduced by the Committee under
Section 8.6 or which may not be converted for any other reason after
the end of the Performance Period shall be canceled at the time they
would otherwise be distributable. When the Committee desires an
Award to qualify under Section 162(m) of the Code, as amended, the
Committee shall establish the Performance Goals for the respective
Performance Shares and Performance Units prior to or within 90 days
of the beginning of the service relating to such Performance Goal,
and not later than after 25% of such period of service has elapsed.
For all other Awards, the Performance Goals must be established
before the end of the respective Performance Period.
(a) The Performance Criteria which the Committee is authorized
to use, in its sole discretion, are any of the following
criteria or any combination thereof:
(1) Financial performance of the Company (on a
consolidated basis), of one or more of its
Subsidiaries, and/or a division of any of the
foregoing. Such financial performance may be based on
net income and/or Value Added (after-tax cash
operating profit less depreciation and less a capital
charge).
(2) Service performance of the Company (on a consolidated
basis), of one or more of its Subsidiaries, and/or of
a division of any of the foregoing. Such service
performance may be based upon measured customer
perceptions of service quality.
(3) The Company's Stock price; return on shareholders'
equity; total shareholder return (Stock price
appreciation plus dividends, assuming the
reinvestment of dividends); and/or earnings per
share.
(4) With respect to the Company (on a consolidated
basis), to one or more of its Subsidiaries, and/or to
a division of any of the foregoing: sales; costs;
market share of a product or service; return on net
assets; return on assets; return on capital; profit
margin; and/or operating revenues, expenses or
earnings.
(b) If the performance of more than one Subsidiary is
being measured to determine the attainment of
performance goals, then a weighted average of the
Subsidiaries' results shall be used, as determined
by the Committee, including, but not limited to,
basing such weighting upon the revenues, assets or
net income for each Subsidiary for any year prior to
the Performance Period or by using budgets to weight
such Subsidiaries.
(c) Except to the extent otherwise provided by the
Committee in full or in part, if any of the
following events occur during a Performance Period
and would directly affect the determination of
whether or the extent to which Performance Goals are
met, they shall be disregarded in any such
computation: changes in accounting principles;
extraordinary items; changes in tax laws affecting
net income and/or Value Added; natural disasters,
including floods, hurricanes, and earthquakes; and
intentionally inflicted damage to property which
directly or indirectly damages the property of the
Company or its Subsidiaries. No such adjustment
shall be made to the extent such adjustment would
cause the Performance Shares or Performance Units to
fail to satisfy the performance based exemption of
Section 162(m) of the Code.
8.5 Dividend Equivalents on Performance Shares. Unless reduced or
eliminated by the Committee, a cash payment in an amount equal to
the dividend payable on one Share will be made to each Participant
for each Performance Share which on the record date for the dividend
had been awarded to the Participant and not converted, distributed
(or deferred) or canceled.
8.6 Form and Timing of Payment of Performance Units and Performance
Shares. As soon as practicable after the applicable Performance
Period has ended and all other conditions (other than Committee
actions) to conversion and distribution of a Performance Share
and/or Performance Unit Award have been satisfied (or, if
applicable, at such other time determined by the Committee at or
before the establishment of the Performance Goals for such
Performance Period), the Committee shall determine whether and the
extent to which the Performance Goals were met for the applicable
Performance Units and Performance Shares. If Performance Goals have
been met, then the number of Performance Units and Performance
Shares to be converted into Stock and/or cash and distributed to the
Participants shall be determined in accordance with the Performance
Goals for such Awards, subject to any limits imposed by the
Committee. Unless the Participant has elected to defer all or part
of his Performance Units or Performance Shares as provided in
Article 10, herein, payment of Performance Units and Performance
Shares shall be made in a single lump sum, as soon as reasonably
administratively possible following the determination of the number
of Shares or amount of cash to which the Participant is entitled.
Performance Units will be distributed to Participants in the form of
cash. Performance Shares will be distributed to Participants in the
form of 50% Stock and 50% Cash, or at the Participant's election,
100% Stock or 100% Cash. In the event the Participant is no longer
an Employee at the time of the distribution, then the distribution
shall be 100% in cash, provided the Participant may elect to take
50% or 100% in Stock. At any time prior to the distribution of the
Performance Shares and/or Performance Units (or if distribution has
been deferred, then prior to the time the Awards would have been
distributed), unless otherwise provided by the Committee, the
Committee shall have the authority to reduce or eliminate the number
of Performance Units or Performance Shares to be converted and
distributed or to mandate the form in which the Award shall be paid
(i.e., in cash, in Stock or both, in any proportions determined by
the Committee).
Unless otherwise provided by the Committee, any election to take
a greater amount of cash or Stock with respect to Performance Shares
must be made in the calendar year prior to the calendar year in
which the Performance Shares are distributed (or if distribution has
been deferred, then in the year prior to the year the Performance
Shares would have been distributed absent such deferral). In
addition, if required in order to exempt the transaction from the
provisions of Section 16(b) of the Exchange Act, any election by an
Insider to take a greater amount in cash must be made during a
Window Period and shall be subject to Committee approval.
For the purpose of converting Performance Shares into cash and
distributing the same to the holders thereof (or for determining the
amount of cash to be deferred), the value of a Performance Share
shall be the average of the Fair Market Values of Shares for the
period of five (5) trading days ending on the valuation date. The
valuation date shall be the first business day of the second month
in the year of distribution (or the year it would have been
distributed were it not deferred), except that in the case of
distributions due to death or Disability, the valuation date shall
be the first business day of the month in which the Committee
determines the distribution. Performance Shares to be distributed in
the form of Stock will be converted at the rate of one (1) Share of
Stock per Performance Share.
8.7 Termination of Employment Due to Death, Disability, or Retirement.
If the Employment of a Participant shall terminate by reason of
death or Disability, the Participant shall receive a lump sum payout
of all outstanding Performance Units and Performance Shares
calculated as if all unfinished Performance Periods had ended with
100% of the Performance Goals achieved, payable in the year
following the date of termination of Employment. In the event of
Retirement, the full Performance Units and Performance Shares shall
be converted and distributed based on and subject to the achievement
of the Performance Goals and in accordance with all other terms of
the Award and this Plan.
8.8 Termination of Employment for Other Reasons. If the Employment of a
Participant shall terminate for other than a reason set forth in
Section 8.7 (and other than for Cause), the number of Performance
Units and Performance Shares to be converted and distributed shall
be converted and distributed based upon the achievement of the
Performance Goals and in accordance with all other terms of the
Award and the Plan; however, the Participant may receive no more
than a prorated payout of all Performance Units and Performance
Shares, based on the portions of the respective Performance Periods
that have been completed.
8.9 Termination of Employment for Cause. In the event that a
Participant's Employment shall be terminated by the Company for
Cause, all Performance Units and Performance Shares shall be
forfeited by the Participant to the Company.
8.10 Nontransferability. Performance Units and Performance Shares may not
be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than in accordance with the SBC Rules for
Employee Beneficiary Designations.
Article 9 Beneficiary Designation.
In the event of the death of a Participant, distributions or
Awards under this Plan, other than Restricted Stock, shall pass in
accordance with the SBC Rules for Employee Beneficiary Designations.
Article 10 Deferrals.
10.1 Deferrals. Unless otherwise provided by the Committee, a Participant
may defer all or part of the Stock or cash to be received upon
conversion and distribution of Performance Units or Performance
Shares. In the event of the termination of Employment of a
Participant prior to becoming eligible for Retirement, no deferrals
under this Article shall be permitted and any previously deferred
Performance Shares or Performance Units, and earnings thereon, shall
be distributed as soon as administratively possible.
10.2 Deferral of Performance Unit and Performance Share Distributions.
Prior to the calendar year in which Performance Units or Performance
Shares are to be distributed (or if deferred, prior to the calendar
year the Awards would have been distributed), Participants may elect
to defer the receipt of a Performance Unit or Performance Share
distribution upon such terms as the Committee deems appropriate.
Unless otherwise provided by the Committee, Participants may elect
to defer receipt of all or part of a Performance Unit or Performance
Share for distribution in a lump sum in February of any calendar
year following the year in which the Awards would otherwise be
distributed, or to be distributed in up to 15 annual installments
(each installment shall be equal to the total Shares or cash in the
Award divided by the number of remaining installments), payable each
calendar year in the month determined by the Participant, beginning
as soon as administratively possible after Retirement or in a later
month in the calendar year of Retirement, or in the calendar year
immediately thereafter.
(a) Deferred amounts which would otherwise have been
distributed in cash shall be credited to the
Participant's account and shall bear interest from
the date the Awards would otherwise have been paid.
The interest will be credited quarterly to the
account at the declared rate determined by the
Company from time to time, which shall not be less
than one-fourth of the annual Moody's Corporate Bond
Yield Average-Monthly Average Corporates, as
published by Moody's Investor Service, Inc., (or
successor thereto) for the month of September before
the calendar year in question.
(b) Deferred amounts which would otherwise have been
distributed in Shares by the Company shall be
credited to the Participant's account as deferred
Shares. The Participant's account shall also be
credited on each dividend payment date for Shares
with an amount equivalent to the dividend payable on
the number of Shares equal to the number of deferred
Shares in the Participant's account on the record
date for such dividend. Such amount shall then be
converted to a number of additional deferred Shares
determined by dividing such amount by the price of
Shares, as determined in the following sentence. The
price of Shares related to any dividend payment date
shall be the average of the Fair Market Values of
Shares for the period of five (5) trading days
ending on such dividend payment date, or the period
of five (5) trading days immediately preceding such
dividend payment date if the New York Stock Exchange
is closed on the dividend payment date.
(c) At any time during the calendar year prior to the
calendar year during which an Award deferred under
the provisions of this Article 10 is scheduled for
distribution, a Participant may further defer the
commencement of the distribution of such Award to a
subsequent calendar year and upon such further
deferral, change the number of installments
applicable to the distribution of the Award.
Amounts that are further deferred pursuant to this
Article 10 shall continue to be subject to all
provisions of this Plan including further
distribution modifications as provided herein.
Article 11. Employee Matter.
11.1 Employment Not Guaranteed. Nothing in the Plan shall interfere with
or limit in any way the right of the Company or any Subsidiary to
terminate any Participant's Employment at any time, nor confer upon
any Participant any right to continue in the employ of the Company
or one of its Subsidiaries.
11.2 Participation. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
11.3 Claims and Appeals. Any claim under the Plan by a Participant or
anyone claiming through a Participant shall be presented to the
Committee. Any person whose claim under the Plan has been denied
may, within sixty (60) days after receipt of notice of denial,
submit to the Committee, a written
request for review of the decision denying the claim. The
Committee shall determine conclusively for all parties all
questions arising in the administration of the Plan.
Article 12 Change in Control.
Upon the occurrence of a Change in Control:
(a) Any and all Options granted hereunder immediately
shall become vested and exercisable;
(b) Any Restriction Periods and all restrictions imposed on
Restricted Shares shall lapse and they shall immediately
become fully vested;
(c) The 100% Performance Goal for all Performance Units
and Performance Shares relating to incomplete
Performance Periods shall be deemed to have been
fully achieved and shall be converted and
distributed in accordance with all other terms of
the Award and this Plan; provided, however,
notwithstanding anything to the contrary in this
Plan, no outstanding Performance Unit or Performance
Share may be reduced.
Article 13. Amendment, Modification, and Termination.
13.1 Amendment, Modification, and Termination. The Board may at any time
suspend or terminate the Plan in whole or in part; the Disinterested
Committee may at any time and from time to time, alter or amend the
Plan in whole or in part.
13.2 Awards Previously Granted. No termination, amendment, or
modification of the Plan shall adversely affect in any material way
any Award previously granted under the Plan, without the written
consent of the Participant holding such Award.
Article 14 Withholding.
14.1 Tax Withholding. The Company shall deduct or withhold an amount
sufficient to satisfy Federal, state, and local taxes (including the
Participant's employment tax obligations) required by law to be
withheld with respect to any taxable event arising or as a result of
this Plan ("Withholding Taxes").
14.2 Share Withholding. With respect to withholding required upon the
exercise of Options, upon the lapse of restrictions on Restricted
Stock, upon the distribution of Performance Shares in the form of
Stock, or upon any other taxable event hereunder involving the
transfer of Stock to a Participant, the Company shall withhold
Stock having a Fair Market Value on the date the tax is to be
determined in an amount equal to the Withholding Taxes on such
Stock.
Any fractional Share of Stock payable to a Participant shall be
withheld as additional Federal withholding, or, at the option of the
Company, paid in cash to the Participant.
Unless otherwise determined by the Committee, when the method of
payment for the Exercise Price is from the sale by a stockbroker
pursuant to Section 6.7(b)(ii), herein, of the Stock acquired
through the Option exercise, then the tax withholding shall be
satisfied out of the proceeds. For administrative purposes in
determining the amount of taxes due, the sale price of such Stock
shall be deemed to be the Fair Market Value of the Stock.
Prior to the end of any Performance Period a Participant may
elect to have a greater amount of Stock withheld from the
distribution of Performance Shares to pay withholding taxes;
provided, however, the Committee may prohibit or limit any
individual election or all such elections at any time. In addition,
if required in order to exempt the transaction from the provisions
of Section 16(b) of the Exchange Act, any such election by an
Insider must be made during a Window Period and shall be subject to
Committee approval.
Article 15 Successors.
All obligations of the Company under the Plan, with respect to
Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a
direct or indirect purchase, merger, consolidation, or otherwise, of
all or substantially all of the business and/or assets of the
Company.
Article 16 Legal Construction.
16.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the
plural.
16.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Plan, and the Plan shall
be construed and enforced as if the illegal or invalid provision had
not been included.
16.3 Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental
agencies or national securities exchanges as may be required.
16.4 Securities Law Compliance. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable
conditions or Rule 16b-3 or its successors under the Exchange Act.
To the extent any provision of the plan or action by the Committee
fails to comply with a condition of Rule 16b-3 or its successors, it
shall not apply to the Insiders or transactions thereby.
16.5 Governing Law. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with
and governed by the laws of the State of Texas.
Exhibit 10-s
SBC Communications Inc.
Non-Employee Director
Stock and Deferral Plan
November 21, 1997
<PAGE>
SBC Communications Inc.
Non-Employee Director Stock and Deferral Plan
Article 1. Purpose
The purpose of the Non-Employee Director Stock and Deferral Plan (the
"Plan") (formerly the Deferred Compensation Plan for Non-Employee Directors) is
to promote the achievement of long-term objectives of SBC Communications Inc.
("SBC" or the "Company") by linking the personal interests of Non-Employee
Directors to those of the Company's shareholders and to attract and retain
Non-Employee Directors of outstanding competence.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below and, when the defined meaning is intended, the initial letter of the
word is capitalized:
(a) "Award" means, individually or collectively, an award under this
Plan of Stock Units.
(b) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(c) "Committee" means the Human Resources Committee of the Board of
Directors of the Company.
(d) "Company" means SBC Communications Inc., a Delaware corporation,
together with any and all Subsidiaries.
(e) "Director" means any individual who is a member of the Board of
Directors of the Company, including Advisory Directors.
(f) "Employee" means any full-time, nonunion, salaried employee of the
Company or of the Company's Subsidiaries. For purposes of the Plan,
an individual whose only employment relationship with the Company is
as a Director, shall not be deemed to be an Employee.
(g) "Fair Market Value" shall mean the closing price for Shares on the
relevant date as reported on the consolidated tape, or if there is
no sale on such date, then on the last previous day on which a sale
was reported.
(h) "Non-Employee Director" means any individual who is a member of the
Board of Directors of the Company, but who is not otherwise an
Employee of the Company, nor has otherwise been an Employee of the
Company.
(i) "Participant" means a person who is entitled to participate in the
Plan.
(j) "Shares" means shares of Common Stock of the Company, par value one
dollar ($1.00) per share.
(k) "Stock Unit" or "Unit" means an Award acquired by a Participant as a
measure of participation under the Plan, and having a value equal to
a Share.
Article 3. Eligibility and Administration
3.1 Eligibility. Persons eligible to participate in the Plan are limited to
Non-Employee Directors.
3.2 The Human Resources Committee. The Plan shall be administered by the Human
Resources Committee of the Board of Directors of the Company, subject to the
restrictions set forth in the Plan.
3.3 Administration by the Committee. The Committee shall have the full power,
discretion, and authority to interpret and administer the Plan in a manner
consistent with the Plan's provisions. However, in no event shall the Committee
have the power to determine Plan eligibility, or to determine the number, the
value, the vesting period, or the timing of Awards to be made under the Plan
(all such determinations being automatic pursuant to the provisions of the
Plan).
3.4 Decisions Binding. All determinations and decisions made by the Committee
pursuant to the Plan, and all related orders or resolutions of the Committee
shall be final, conclusive, and binding on all persons, including the Company,
its shareholders, Participants, and their estates and beneficiaries.
Article 4. Payment of Annual Retainer in Stock
4.1 Form of Annual Retainer. In lieu of receiving the annual retainer (which
term, as used in this Plan, shall include any additional annual retainer for
committee chairman) in cash, effective for payments on or after January 1, 1998,
a Non-Employee Director may elect to receive all (100%) or fifty percent (50%)
of the Director's annual retainer in the form of Shares. Such election shall be
made prior to the beginning of, and will be effective for, the calendar year in
which the annual retainer will be paid. Each election shall become irrevocable
as of the last day such election may be made. Provided, however, Non-Employee
Directors not serving on the Board prior to January 1, 1998, may, at any time
within thirty (30) days of their original election to the Board, make an
irrevocable election with respect to payments not yet made, effective for the
then current calendar year. Unless the Non-Employee Director notifies the
Secretary of the Company otherwise prior to the beginning of each subsequent
calendar year, the election will renew automatically for an additional calendar
year.
4.2 Payment of Shares. One fourth of the annual retainer is paid in advance on
the first day of each quarter (or the first business day thereafter) and is
fully earned on that date. For their first retainer payment only, newly elected
Non-Employee Directors are paid the first day of the quarter next occurring on a
pro-rata basis. Each fraction of a month is considered a whole month. The Shares
paid pursuant to Section 4.1 shall be delivered as soon as administratively
possible following the scheduled retainer payment date. The number of Shares to
be paid shall equal the portion of the quarterly retainer being taken in stock,
divided by the Fair Market Value of a Share on the date of the scheduled payment
of the retainer. Any fractional Share shall be paid in cash as provided
hereunder.
4.3 Holding Period for Shares. Any Shares acquired by a Director under this
Article 4 may not be sold for one year after acquisition. Thereafter, such
Shares shall only be sold pursuant to an effective registration statement or
pursuant to an exemption from the Securities Act of 1933, including sales
pursuant to Rule 144 thereunder. The Company may place a legend on the
certificates for such Shares evidencing this restriction.
Article 5. Award of Stock Units for Non-Employee Directors
5.1 Award of Deferred Stock Units for Non-Employee Directors. Commencing
November 21, 1997, and then effective the day of each annual meeting of the
Company's shareholders thereafter, each Non-Employee Director shall be Awarded
that number of Stock Units that is equal to fifty percent (50%) of the annual
retainer as in effect at the time of the Award, divided by the Fair Market Value
of a Share on the date of the Award. Each Award is intended to be in
consideration for service until the next annual meeting of shareholders, but
will be fully earned on the date of the Award. Provided, however, if the
Director terminates service on or before the day of the annual meeting of
shareholders, the Award to be paid on such meeting date will not be issued.
5.2 Award of Deferred Stock Units for New Non-Employee Directors. The following
applies only to Non-Employee Directors who originally became a Non-Employee
Director after November 21, 1997. Each Non-Employee Director shall receive an
annual Award of Stock Units effective the day of the annual meeting of
shareholders. The number of Stock Units in each such Award shall equal thirteen
thousand dollars ($13,000), divided by the Fair Market Value of a Share on the
date of the Award. Each Award is intended to be in consideration for service
until the next annual meeting of shareholders, but will be fully earned on the
date of the Award. If the Director terminates service on the day of the annual
meeting of shareholders, no such Award will be issued. No Director shall receive
more than ten (10) Awards under this Section 5.2.
5.3 Deferral of Retainers, Committee Fees, and Meeting Fees into Stock Units.
Effective for payments on or after January 1, 1998, each Non-Employee Director
may elect to defer all (100%) or fifty percent (50%) of the cash portion of the
Director's annual retainer into Stock Units. In addition, a Non-Employee
Director may elect to defer all (100%) of the Director's Board and committee
fees (collectively "Fees") into Stock Units. The number of Stock Units acquired
shall equal the Fees and/or the portion of the annual retainer being deferred
into Stock Units, divided by the Fair Market Value of a Share on the date of the
scheduled payment of the Fees.
Any deferral election under this Section 5.3 shall be made prior to the
beginning of, and will be effective for, the calendar year in which such
payments would otherwise be made. Each such election shall become irrevocable as
of the last day such election may be made. Provided, however, Non-Employee
Directors not serving on the Board prior to January 1, 1998, may, at any time
within thirty (30) days of their original election to the Board, make an
irrevocable election with respect to payments not yet made, effective for the
then current calendar year. Unless the Non-Employee Director notifies the
Secretary of the Company otherwise prior to the beginning of each subsequent
calendar year, each election hereunder will renew automatically for an
additional calendar year.
5.4 Payout of Deferred Stock Units. All Stock Units shall be paid out in the
form of one Share for each Stock Unit. The Participant shall elect the timing of
the payout for Stock Unit Awards no later than the calendar year prior to the
first scheduled payment of such Stock Units; any prior elections by the
Participant shall become irrevocable at that time. One election will apply to
all Stock Units, whether from deferrals, annual Awards or otherwise. Stock Units
acquired under this Plan shall be paid out in a lump sum payment or in up to
fifteen (15) annual installments, as elected by the Participant. The lump sum
payment or the first installment, as the case may be, shall be payable on the
first day of February of the year following the calendar year of the termination
of the Participant's service as a Director, or the first day of a later month
selected by the Participant. All annual installments thereafter shall be payable
on the anniversary of the first such payment. If the Director fails to make a
timely election as to the number of installments, the Stock Units shall be paid
out in four (4) annual installments.
For Participants electing a payout of Stock Units in installments, the
number of Stock Units to be paid out in each installment shall equal the number
of Stock Units available for payout, divided by the number of remaining
installments (including the installment being made). A fractional Stock Unit
shall be paid in cash.
5.5 Stock Units. Each Stock Unit shall represent an unfunded and unsecured
promise by SBC to issue a Share. On the record date for cash dividends payable
on a Share, Participants holding Stock Units shall earn dividend equivalents
paid in the form of additional Stock Units added to their account. The number of
Stock Units so added shall equal the dividends on an equal number of Shares,
divided by the Fair Market Value of a Share on the record date.
5.6 Holding Period for Shares. Any Shares acquired by a Director under this
Article 5 may not be sold for one year after acquisition. Thereafter, such
Shares shall only be sold pursuant to an effective registration statement or
pursuant to an exemption from the Securities Act of 1933, including sales
pursuant to Rule 144 thereunder. The Company may place a legend on the
certificates for such Shares evidencing this restriction.
Article 6. Cash Deferral Account
6.1 Cash Deferral Account. A cash deferral account (the "Cash Deferral Account")
shall be established and maintained by the Company for each Participant that
makes a cash deferral under the Plan. Each Cash Deferral Account shall be
credited as of the date the amount deferred otherwise would have become due and
payable to the Participant and shall be credited to reflect the interest return
thereon. The establishment and maintenance of such Cash Deferral Accounts,
however, shall not be construed as entitling any Participant to any specific
assets of the Company and shall represent an unfunded and unsecured promise of
the Company the amounts due thereunder.
6.2 Cash Deferral Elections. Effective for payments on or after January 1, 1998,
each Non-Employee Director may elect to defer all (100%) or fifty percent (50%)
of the cash portion of the Director's annual retainer into the Director's Cash
Deferral Account. In addition, a Non-Employee Director may elect to defer all
(100%) of the Director's Board and committee fees (collectively "Fees") into the
Director's Cash Deferral Account.
Any deferral election under this Section 6.2 shall be made prior to the
beginning of, and will be effective for, the calendar year in which such
payments would otherwise be made. Each such election shall become irrevocable as
of the last day such election may be made. Provided, however, Non-Employee
Directors not serving on the Board prior to January 1, 1998, may, at any time
within thirty (30) days of their original election to the Board, make an
irrevocable election with respect to payments not yet made, effective for the
then current calendar year. Unless the Non-Employee Director notifies the
Secretary of the Company otherwise prior to the beginning of each subsequent
calendar year, each election hereunder will renew automatically for an
additional calendar year.
Deferral elections under the Plan made prior to November 21, 1997, shall
remain in place through the end of 1997, and all such deferrals shall be
credited to the Cash Deferral Account and continue to earn interest in
accordance with Section 6.3. Any new Non-Employee Director joining the Board
after November 21, 1997, and before January 1, 1998, may make an election with
respect to 1997 annual retainers and fees in accordance with the Plan as it read
immediately prior to the modifications of November 21, 1997.
6.3 Interest on Cash Deferral Accounts. The annual rate of interest on amounts
in the Cash Deferral Accounts for 1997 and subsequent calendar years shall be
the Moody's Corporate Bond Yield Average-Monthly Average Corporates as published
by Moody's Investor Service, Inc. (or any successor thereto) for the month of
September before the calendar year in question (if such yield is no longer
published, a substantially similar average selected by the Human Resources
Committee) or such other rate as the Human Resources Committee shall determine
prior to the year for which the interest rate would be applicable. Interest
shall be credited quarterly, in arrears.
6.4 Form and Timing of Payout of Cash Deferral Accounts. Cash Deferral Accounts
shall be paid out in cash. The Participant shall elect the timing of the payout
for Participant's Cash Deferral Account no later than the calendar year prior to
the first scheduled payment thereof; any prior elections by the Participant
shall become irrevocable at that time. One election shall apply to a
Participant's entire Cash Deferral Account. A Participant's Cash Deferral
Account shall be paid out in a lump sum payment or in up to fifteen (15) annual
installments, as elected by the Participant. The lump sum payment or the first
installment, as the case may be, shall be payable on the first day of February
of the year following the calendar year of the termination of the Participant's
service as a Director, or the first day of a later month selected by the
Participant. All annual installments thereafter shall be payable on the
anniversary of the first such payment. If the Director fails to make a timely
election as to the number of installments, the Participant's Cash Deferral
Account shall be paid out in four (4) annual installments.
Article 7. Amendment, Modification, and Termination
7.1 Amendment, Modification, and Termination. Subject to the terms set forth in
this Article 7, the Board may terminate, amend, or modify the Plan at any time
and from time to time.
7.2 Awards Previously Granted. Unless required by law, no termination,
amendment, or modification of the Plan shall in any material manner adversely
affect any Award previously provided under the Plan, without the written consent
of the Participant holding the Award.
Article 8. Miscellaneous
8.1 Competition. Notwithstanding any election hereunder, in the event a Director
ceases to be a Director of the Company and becomes a proprietor, officer,
partner, employee, director or otherwise becomes affiliated with any business
that is in competition with the Company or any of its subsidiaries, or becomes
employed by any governmental agency having jurisdiction over the activities of
the Company or any of its subsidiaries, all as determined by the Committee in
its sole discretion, the entire balance hereunder may be immediately paid out at
the election of the Company, in which case no further amounts may be earned
under this Plan.
8.2 Elections. All elections and notices of any kind hereunder shall be in
writing and provided to the Secretary of the Company.
8.3 Assignment. Except as otherwise provided herein, no rights under this Plan
may be assigned by a Participant.
8.4 Severability. In the event any provision of the Plan shall be held illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
8.5 Death of a Director/Beneficiary Designation.
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named primarily or contingently) to
whom any benefit under the Plan is to be paid in the event of his or her death.
Each designation will revoke all prior designations by the same Participant,
shall be in a form prescribed by the Secretary of SBC, and will be effective
only when filed by the Participant in writing with the Secretary during his or
her lifetime. In the absence of any such designation, benefits remaining unpaid
at the Participant's death shall be paid to the Participant's estate.
In the event of the death of a Participant before full payment of all
amounts due hereunder, the balance shall be paid in a lump sum as soon as
administratively possible in accordance with the foregoing. Notwithstanding
this, if the Participant so elects as part of the Participant's deferral
elections, the Stock Units and/or the Cash Deferral Account will be paid out in
the number of annual installments elected by the Participant, beginning on the
first day of the month following the Participant's death and occurring annually
thereafter; provided, however, if distributions to the Participant have already
commenced at the time of the Participant's death, then under this election,
distributions will continue as scheduled.
8.6 No Right of Nomination. Nothing in the Plan shall be deemed to create any
obligation on the part of the Board to nominate any Director for reelection by
the Company's shareholders.
8.7 Shares Available/Fractional Shares. The Shares delivered under the Plan may
be either authorized but unissued Shares, or Shares which have been or may be
reacquired by the Company, as determined from time to time by the Board.
In no case shall a fractional Share be issued under this Plan. Any
fractional Share payable hereunder, upon the conversion of a Stock Unit or
otherwise, shall be payable in cash in an amount equal to such fraction of a
Share times the Fair Market Value of a Share on the date the fractional Share
would otherwise be payable.
8.8 Successors. All obligations of the Company under the Plan with respect to
Awards granted hereunder shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
8.9 Requirements of Law. The granting of Awards under the Plan shall be subject
to all applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
8.10 Governing Law. The Plan, and all agreements hereunder, shall be construed
in accordance with and governed by the internal, substantive laws of the State
of Texas.
EXHIBIT 10u
PERSONAL & PRIVATE
October 24, 1997
Mr. Philip J. Quigley
130 Kearney Street
San Francisco, California 94108
Dear Phil:
This will confirm our discussion of October 21, 1997.
1. We have announced your resignation from the SBC Board and your
retirement as an employee to be effective December 30, 1997. The announcement
reflected your contributions to the Company over your career and your continuing
consulting work through March 2000, and in that capacity you will serve as
Chairman of the California Business Roundtable in 1998.
2. You will continue to be paid in accordance with your 1997 Agreement
through December 30, 1997. The remainder of your salary, through March 31, 1998,
will be paid to you or your survivor in the event of your death after January 1
and on or before January 15, 1998, along with a cash award equivalent to your
1997 target Short Term award of $675,000. In return for this prepayment, you
will make yourself available for consulting between December 30 and the
following April 1, when your regular consulting agreement becomes effective.
Solely for purposes of the PTG Executive Supplemental Cash Balance Plan; the PTG
Executive Deferral Plan; and, the PTG 1996 Executive Deferred Compensation Plan,
you will be treated and the plans applied as if you had been employed through
March 30, 1998.
3. After January 1 and on or before January 15, 1998, we will pay you (or
your survivor) the sum of $4,712,365. This will represent payment of Sections 6
and 7 of your 1994 Agreement with Pacific Telesis Group. Attached is a breakdown
of the amounts due you, assuming the items you would choose to receive are those
marked on the attached.
4. You will receive benefits under the SBC Executive Health Plan and SBC's
financial counseling plan in accordance with the terms of those plans. SBC will
provide for your office space and other amenities consistent with those provided
by PTG to other former chairmen and described in Section 6 of your 1997
Agreement with SBC.
5. You will give SBC an option to extend your consulting agreement for a
period of two additional years on the same terms as originally provided under
your consulting agreement. The option will be exerciseable solely at SBC's
discretion. For such option SBC will pay you (or your survivor) the sum of
$500,000 after January 2 and on or before January 15, 1999. If SBC elects to
exercise this option, it will provide you with written notice by December 31,
1999.
6. Paragraph 5 of the Agreement dated March 31, 1997, between you and SBC
is amended to include the following:
The Company shall not have the right to terminate this Agreement
pursuant to this paragraph unless it notifies Mr. Quigley of the
existence of a conflict at which time Mr. Quigley shall have 30 days to
cure any conflict by ceasing engaging in the activity which gives rise
to the conflict. If Mr. Quigley does not cease the activity that gives
rise to the conflict, the Company may terminate the Agreement on ten
days notice.
7. Except as discussed above, the rest of your 1994 and 1997 employment
agreements will be implemented as provided in those agreements. Your Pacific
Telesis pension and retirement benefits will be paid in accordance with your
elections in those plans.
If the terms of this proposal are acceptable to you, please indicate your
agreement by signing below.
Messrs. Whitacre and Hay, (the latter being the Chairman of the Human
Resources Committee), advised me that at the Committee's November 1997 meeting
they will recommend that the options you were granted on May 1 and 2, 1997 be
vested in recognition of the fact that you will continue as a consultant of SBC
and have granted SBC an option to extend that consultant relationship for two
additional years.
Very truly yours,
Attachment
I hereby resign as a Director of SBC and retire as an Officer, employee
and Director of all SBC subsidiaries effective December 30, 1997.
-------------------
Philip J. Quigley
Exhibit 10-v(i)
CONSENT OF THE
EXECUTIVE COMMITTEE OF
THE BOARD OF DIRECTORS
OF PACIFIC TELESIS GROUP
IN LIEU OF A MEETING
THE UNDERSIGNED, being all the members of the Executive Committee of
the Board of Directors of Pacific Telesis Group (the "Corporation"), a Nevada
corporation, do hereby consent to and deem it advisable to adopt and do hereby
adopt the following resolutions, without a meeting, pursuant to Nev. Rev. Stat.
ss. 78.315, which consent shall have the same force and effect as a unanimous
vote at a meeting duly held.
WHEREAS, as a result of the merger on April 1, 1997, of the
Corporation with SBC Communications Inc. (NV), a Nevada corporation, it is
desirable to make changes to certain benefit plans of the Pacific Telesis Group:
THEREFORE, BE IT:
RESOLVED, that the Pacific Telesis Group Non-Qualified Savings Plan
be, and it hereby is, amended as follows:
The following language shall be added at the end of the first paragraph of
Section 2: "An Employee who commences participation in another
non-qualified deferral plan of Pacific Telesis Group or of any company
controlling, controlled by or under common control with Pacific Telesis
Group shall cease to be eligible to participate in this Plan."
The following language shall be added at the end of the first paragraph of
Section 4: "A Participant shall cease participation in this Plan effective
upon participation in another non-qualified deferral plan of Pacific
Telesis Group or of any company controlling, controlled by or under common
control with Pacific Telesis Group."
RESOLVED FURTHER, that the Pacific Telesis Group 1996 Executive
Deferred Compensation Plan be, and it hereby is, amended as follows:
The following paragraph shall be added at the end of Section 2: "Provided,
however, an employee shall not be eligible to participate in this Plan if
the employee participates in another non-qualified deferral plan of
Pacific Telesis Group or of any company controlling, controlled by or
under common control with Pacific Telesis Group."
The last sentence of Section 4.2 shall be amended to read as follows: "An
election with respect to Salary, STIP or Other Awards for services
performed in a calendar year and/or with respect to LTIP for services
performed in a multiple-year performance period shall be deemed
irrevocably terminated when the employee, whether by transfer or
termination of employment, or by participation in another non-qualified
deferral plan of Pacific Telesis Group or of any company controlling,
controlled by or under common control with Pacific Telesis Group, ceases
to be eligible to participate in the Plan during such calendar year and/or
such multiple-year performance period (as applicable)."
RESOLVED FURTHER, that the Pacific Telesis Group 1996 Directors'
Deferred Compensation Plan be, and it hereby is, amended as follows:
The following paragraph shall be added at the end of Section 4.2: "If a
Director of Pacific Telesis Group as of March 31, 1997, became a Director
(which term shall be deemed to include an Advisory Director) of SBC
Communications Inc., a Delaware corporation, on April 1, 1997, then such
Director may irrevocably elect in writing, on or before December 31, 1997,
that the Director shall not be deemed to have ceased being a Director of
Pacific Telesis Group so long as the Director continuously serves as a
Director of SBC Communications Inc."
RESOLVED FURTHER, that the Pacific Telesis Group Deferred
Compensation Plan for Non-Employee Directors be, and it hereby is, amended as
follows:
The following subsection 4(f) shall be added at the end of Section 4: "If
a Director of Pacific Telesis Group as of March 31, 1997, became a
Director (which term shall be deemed to include an Advisory Director) of
SBC Communications Inc., a Delaware corporation, on April 1, 1997, then
such Director may irrevocably elect in writing, on or before December 31,
1997, that the Director shall not be deemed to have ceased being a
Director of Pacific Telesis Group so long as the Director continuously
serves as a Director of SBC Communications Inc."
The undersigned, consisting of all the members of the Executive
Committee of the Board of Directors of the Corporation, have executed these
resolutions effective November 21, 1997.
Royce S. Caldwell James D. Ellis
EXHIBIT 12
SBC COMMUNICATIONS INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars in Millions
<TABLE>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Before Income Taxes,
Extraordinary Loss and Cumulative
Effect of Accounting Changes* $ 2,237 $ 4,975 $ 4,383 $ 4,091 $ 2,070
Add: Interest Expense 947 812 957 935 1,005
Dividends on Preferred Securities 80 60 - - -
1/3 Rental Expense 130 108 77 85 81
------------ ----------- ----------- ----------- -----------
Adjusted Earnings $ 3,394 $ 5,955 $ 5,417 $ 5,111 $ 3,156
============ =========== =========== =========== ===========
Total Interest Charges $ 1,067 $ 947 $ 957 $ 935 $ 1,005
Dividends on Preferred Securities 80 60 - - -
1/3 Rental Expense 130 108 77 85 81
------------ ----------- ----------- ----------- -----------
Adjusted Fixed Charges $ 1,277 $ 1,115 $ 1,034 $ 1,020 $ 1,086
============ =========== =========== =========== ===========
Ratio of Earnings to Fixed Charges 2.66 5.34 5.24 5.01 2.91
<FN>
* Undistributed earnings on investments accounted for under the equity method
have been excluded.
</FN>
</TABLE>
<TABLE>
Selected Financial and Operating Data
Dollars in millions except per
share amounts
- -------------------------------------------------------------------------------------
At December 31 or for the year
ended: 1997(1) 1996 1995 1994 1993(2)
- -------------------------------------------------------------------------------------
Financial Data
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 24,856 $ 23,445 $ 21,712 $ 21,006 $ 20,084
- -------------------------------------------------------------------------------------
Operating expenses $ 21,686 $ 17,609 $ 16,592 $ 16,056 $ 17,077
- -------------------------------------------------------------------------------------
Operating income $ 3,170 $ 5,836 $ 5,120 $ 4,950 $ 3,007
- -------------------------------------------------------------------------------------
Interest expense $ 947 $ 812 $ 957 $ 935 $ 1,005
- -------------------------------------------------------------------------------------
Equity in net income of affiliates $ 201 $ 207 $ 120 $ 226 $ 250
- -------------------------------------------------------------------------------------
Income taxes $ 863 $ 1,960 $ 1,519 $ 1,448 $ 658
- -------------------------------------------------------------------------------------
Income from continuing operations
before extraordinary loss and
cumulative effect of accounting
changes (3) $ 1,474 $ 3,189 $ 2,958 $ 2,777 $ 1,589
- -------------------------------------------------------------------------------------
Net income (loss) $ 1,474 $ 3,279 $ (3,064) $ 2,800 $ (2,474)
- -------------------------------------------------------------------------------------
Earnings per common share: *
Income from continuing operations
before extraordinary loss and
cumulative effect of accounting
changes (3) $ 0.81 $ 1.73 $ 1.61 $ 1.52 $ 0.88
- -------------------------------------------------------------------------------------
Net income (loss) $ 0.81 $ 1.78 $ (1.66) $ 1.54 $ (1.37)
- -------------------------------------------------------------------------------------
Earnings per common share-Assuming
Dilution: *
Income from continuing operations
before extraordinary loss and
cumulative effect of accounting
changes (3) $ 0.80 $ 1.72 $ 1.60 $ 1.52 $ 0.88
- -------------------------------------------------------------------------------------
Net income (loss) $ 0.80 $ 1.77 $ (1.66) $ 1.53 $ (1.37)
- -------------------------------------------------------------------------------------
Total assets $ 42,132 $ 39,485 $ 37,112 $ 46,113 $ 47,695
- -------------------------------------------------------------------------------------
Long-term debt $ 12,019 $ 10,930 $ 10,409 $ 10,746 $ 10,588
- -------------------------------------------------------------------------------------
Construction and capital
expenditures $ 5,766 $ 5,481 $ 4,338 $ 3,981 $ 4,021
- -------------------------------------------------------------------------------------
Free cash flow (4) $ 1,204 $ 1,935 $ 2,452 $ 2,952 $ 2,147
- -------------------------------------------------------------------------------------
Dividends declared per common
share* (5) $ 0.895 $ 0.86 $ 0.825 $ 0.79 $ 0.755
- -------------------------------------------------------------------------------------
Book value per common share * (6) $ 5.38 $ 5.28 $ 4.57 $ 7.29 $ 8.34
- -------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 2.66 5.34 5.24 5.01 2.91
- -------------------------------------------------------------------------------------
Return on weighted average
shareowners' equity (7) 14.75% 33.73% 23.97% 19.43% 11.06%
- -------------------------------------------------------------------------------------
Debt ratio (6) 56.19% 55.49% 61.73% 48.57% 45.30%
- -------------------------------------------------------------------------------------
Operating Data#
- -------------------------------------------------------------------------------------
EBITDA (8) $ 8,092 $ 9,945 $ 9,154 $ 8,774 $ 6,750
- -------------------------------------------------------------------------------------
Network access lines in
service (000) 33,440 31,841 30,317 29,147 28,234
- -------------------------------------------------------------------------------------
Access minutes of use (000,000) 129,817 123,303 112,874 100,800 93,877
- -------------------------------------------------------------------------------------
Wireless customers (000) 5,493 4,433 3,672 2,992 2,049
- -------------------------------------------------------------------------------------
Number of employees 118,340 109,870 108,189 110,390 113,755
- -------------------------------------------------------------------------------------
<FN>
* Restated to reflect two-for-one stock split declared January 30, 1998.
# Operating data may be periodically revised to reflect the most current
information available.
1 As detailed in management's discussion and analysis of Results of Operations,
1997 results include charges for several items including strategic initiatives
and ongoing merger integration costs, gain on the sale of SBC's interests in Bell
Communications Research, Inc. and a first quarter after-tax settlement gain.
Excluding these items, SBC reported an adjusted net income of $3,364
for 1997.
2 As noted in management's discussion and analysis of Other Business Matters
- Restructuring Reserve, 1993 results include restructuring costs at Pacific
Telesis Group. Excluding these costs, SBC reported income from continuing
operations before extraordinary loss and cumulative effect of accounting
changes of $2,450.
3 1996, Change in directory accounting; 1995, Discontinuance of Regulatory
Accounting; 1994-1993, Income (loss) from spun-off operations; and 1993,
Early Extinguishment of Debt and Cumulative Effect of Changes in Accounting
Principles.
4 Free cash flow is net cash provided by operating activities less construction and
capital expenditures.
5 Dividends declared by SBC's Board of Directors; these amounts do not include
dividends declared and paid by Pacific Telesis Group prior to the merger.
6 Shareowners' equity used in book value per common share and debt ratio calculations
includes extraordinary loss and changes in accounting principles.
7 Calculated using income before extraordinary loss and changes in accounting
principles. These impacts are included in shareowners' equity.
8 EBITDA is earnings before interest, taxes, depreciation and amortization (operating
income plus depreciation and amortization). SBC considers EBITDA an important
component in our economic value added systems as an indicator of the
operational strength and performance of our businesses. It is provided
as supplemental information and is not intended to be a substitute for operating
income, net income or net cash provided by operating activities as a measure
of financial performance or liquidity.
</FN>
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Dollars in millions except per share amounts
SBC Communications Inc. (SBC) is a holding company whose subsidiaries and
affiliates operate predominantly in the communications services industry. SBC's
subsidiaries and affiliates provide landline and wireless telecommunications
services and equipment, directory advertising and cable television services.
On April 1, 1997, SBC completed a merger which resulted in Pacific Telesis Group
(PAC) becoming a wholly-owned subsidiary of SBC. Among PAC's subsidiaries are
Pacific Bell (PacBell, which also includes its subsidiaries) and Nevada Bell.
The merger was accounted for as a pooling of interests and a tax-free
reorganization. Accordingly, the financial statements for the periods presented
have been restated to include the accounts of PAC (see Note 3 to the Financial
Statements).
SBC's largest telephone subsidiaries are Southwestern Bell Telephone Company
(SWBell), providing landline telecommunications and related services over
approximately 16 million access lines in Texas, Missouri, Oklahoma, Kansas and
Arkansas (five-state area), and PacBell, providing telecommunications and
related services over approximately 17 million access lines in California. SBC
also provides telecommunications and related services through its Nevada Bell
subsidiary over approximately 300 thousand access lines in Nevada. (SWBell,
PacBell and Nevada Bell are collectively referred to as the Telephone
Companies.) The Telephone Companies are subject to regulation by each of the
states in which they operate and by the Federal Communications Commission (FCC).
This discussion should be read in conjunction with the consolidated financial
statements and the accompanying notes. All per share data has been restated to
reflect the two-for-one stock split, effected in the form of a stock dividend,
declared January 30, 1998 (see Note 15 to the Financial Statements).
Results of Operations
Summary
Financial results, including percentage changes from the prior year, are
summarized as follows:
Percent Change
-----------------
1997 1996
1997 1996 1995 vs. vs.
1996 1995
- -------------------------------------------------------------------------------
Operating revenues $ 24,856 $ 23,445 $ 21,712 6.0% 8.0%
Operating expenses $ 21,686 $ 17,609 $ 16,592 23.2% 6.1%
Income before
extraordinary loss and
cumulative effect of $ 1,474 $ 3,189 $ 2,958 (53.8)% 7.8%
accounting change
Extraordinary loss - - $ (6,022) - -
Cumulative effect of
accounting change - $ 90 - - -
Net income (loss) $ 1,474 $ 3,279 $ (3,064) - -
===============================================================================
SBC recognized the cumulative effect of a change in accounting in 1996 relating
to recognition of directory publishing revenues and related expenses and an
extraordinary loss in 1995 from the discontinuance of regulatory accounting at
SWBell and PacBell.
SBC's net income for 1997 includes after-tax charges of approximately $2.0
billion reflecting strategic initiatives resulting from a comprehensive review
of operations of the merged company, the impact of several regulatory rulings
during the second quarter of 1997, costs incurred for customer number
portability since the merger and charges for ongoing merger integration costs.
Excluding these items, SBC reported net income of $3,487 for 1997. Net income
for 1997 was also favorably affected by $33 representing SBC's after-tax gain on
the sale of its interests in Bell Communications Research, Inc. (Bellcore) and a
first quarter 1997 $90 after-tax settlement gain at PAC associated with lump-sum
pension payments that exceeded the projected service and interest costs for 1996
retirements. Excluding these additional items, SBC reported an adjusted net
income of $3,364 for 1997, 5.5% higher than 1996 income before cumulative effect
of accounting change of $3,189. The primary factors contributing to this
increase were growth in demand for services and products at the Telephone
Companies and Southwestern Bell Mobile Systems (Mobile Systems), partially
offset by increased expenses at PacBell, including expenses for the introduction
of Personal Communications Services (PCS) operations in California and Nevada.
The primary factors contributing to the increase in income before extraordinary
loss and cumulative effect of accounting change in 1996 were growth in demand
for services and products at the Telephone Companies and Mobile Systems.
Items affecting the comparison of the operating results between 1997 and 1996,
and between 1996 and 1995, are discussed in the following sections.
Operating Revenues
SBC's operating revenues for 1997 reflect reductions of $188 related
primarily to the impact of several regulatory rulings during the second
quarter of 1997. Excluding these reductions, SBC's operating revenues
increased $1,599, or 6.8%, in 1997 and $1,733, or 8.0%, in 1996. Components
of total operating revenues, including percentage changes from the prior year,
are as follows:
- -------------------------------------------------------------------------------
Percent Change
----------------
1997 1996
1997 1996 1995 vs. vs.
1996 1995
- -------------------------------------------------------------------------------
Local service
Landline $ 9,568 $ 8,754 $ 8,118 9.3% 7.8%
Wireless 3,034 2,635 2,247 15.1 17.3
Network access
Interstate 3,946 4,008 3,770 (1.5) 6.3
Intrastate 1,869 1,823 1,744 2.5 4.5
Long-distance service 2,115 2,240 2,072 (5.6) 8.1
Directory advertising 2,111 1,985 1,984 6.3 0.1
Other 2,213 2,000 1,777 10.7 12.5
================================================================================
$ 24,856 $ 23,445 $ 21,712 6.0% 8.0%
================================================================================
Local Service Landline local service revenues increased in 1997 and 1996
due primarily to increases in demand, including increases in residential
and business access lines and vertical services revenues. Total access
lines increased by 5.0% in both years, of which approximately 50% was due
to growth in California and over 30% was due to growth in Texas. Access
lines in Texas and California account for approximately 80% of the
Telephone Companies' access lines. Approximately 32% of access line growth
in both years was due to sales of additional access lines to existing
residential customers. Vertical services revenues, which include custom
calling options, Caller ID and other enhanced services, increased by
approximately 20% in 1997 and 29% in 1996. Local service revenues also
reflect the implementation of the California High Cost Fund (CHCFB) that
went into effect February 1, 1997. The California Public Utilities
Commission (CPUC) has stated that the CHCFB is intended to directly
subsidize the provision of service to high cost areas and allow PacBell to
set competitive rates for other services. The rebalancing provisions of the
CHCFB resulted in a shift from long-distance revenues of $84 and intrastate
network access revenues of $26 to local service revenues in 1997. For
further information on the operations of the CHCFB, see the discussion
under the heading "Regulatory Environment - California." Additionally,
Federal payphone deregulation in 1997 increased local service revenues and
decreased long-distance service revenues and interstate network access
revenues; the overall impact was a slight increase in total operating
revenues. Rate reductions in 1997 due to CPUC price cap orders partially
offset increases in landline local service revenues.
Wireless local service revenues increased in 1997 and 1996 due primarily to
growth in the number of Mobile Systems' cellular customers of 16.3% and
20.7%, partially offset by declines in average revenue per customer. 1997
wireless local service revenues also include revenues from the introduction
of PCS operations in California, Nevada and Oklahoma. At December 31, 1997,
SBC had 5,068,000 traditional cellular customers, 60,000 resale customers
and 365,000 PCS customers. At December 31, 1996, SBC had 4,398,000
traditional cellular customers and 35,000 resale customers.
Network Access Interstate network access revenues decreased in 1997 due to
$187 in charges. These charges include billing claim settlements related to
the Percentage Interstate Usage (PIU) factor in California and several
Federal regulatory issues including end-user charges, recovery of certain
employee-related expenses and the retroactive effect of the productivity
factor adjustment mandated in the July 1, 1997 Federal price cap filing.
While the change in the PIU factor in California, which is used to allocate
network access revenues between interstate and intrastate jurisdictions,
also had the effect of increasing intrastate network access revenues, it
resulted in a slight decline in total network access revenues. Excluding
these impacts, interstate network access revenues increased in 1997 and
1996 due largely to increases in demand for access services by
interexchange carriers. Growth in revenues from end-user charges
attributable to an increasing access line base also contributed to the
increases in both years. Partially offsetting these increases were the
effects of the rate reductions of approximately $100 in 1997 and $115 in
1996 related to the FCC's productivity factor adjustment.
Intrastate network access revenues in 1997 reflect an increase due to the
PIU settlements and a decrease due to the effects of the CHCFB described
above. Excluding these impacts, intrastate network access revenues
increased slightly in 1997 and 1996 as increases in demand, including usage
by alternative intraLATA toll carriers, were partially offset by state
regulatory rate orders.
Long-Distance Service revenues decreased in 1997 due to the effect of the
CHCFB discussed above, regulatory rate orders, price competition from
alternative intraLATA toll carriers and the introduction and deployment of
extended area local service plans at SWBell. These decreases were somewhat
offset by increases due to growth in wireless revenues and demand resulting
from California's growing economy. Long-distance service revenues increased
in 1996 due principally to increases in demand resulting from California's
growing economy and to growth in Mobile Systems' long-distance revenues,
including interLATA service that began in February 1996. Additionally,
revenues in 1996 increased due to the reduction in 1995 from SWBell
intraLATA toll pool settlement payments and accruals for rate reductions
relating to an appealed 1992 rate order in Oklahoma. The settlement of the
appeals in October 1995 eliminated the need to continue these accruals.
These increases in 1996 revenues were somewhat offset by the impact of
price competition from alternative intraLATA toll carriers.
Directory Advertising revenues increased in 1997 due mainly to increased
demand at Southwestern Bell Yellow Pages, Inc. (Yellow Pages) and Pacific
Bell Directory (PBDirectory) and the publication of directories in 1997
that were not published in 1996. Directory advertising revenues were
relatively unchanged in 1996 as increased revenues were offset by the
decrease resulting from the January 1996 sale of SBC's publishing contracts
for GTE Corporation's service areas to GTE Directories. Excluding the
impact of this sale, revenues increased 5.1% in 1996.
Other operating revenues increased in 1997 and 1996 due primarily to
increased equipment sales at Mobile Systems and Pacific Bell Mobile
Services and revenues from new business initiatives, primarily voice
messaging services and Internet services. Increased demand for PacBell and
SWBell nonregulated services and products also contributed to the increases
in both years.
Operating Expenses
SBC's operating expenses for 1997 reflect approximately $2.9 billion of
charges related to strategic initiatives resulting from a comprehensive
review of operations of the merged company, the impact of several regulatory
rulings during the second quarter of 1997 (see Note 3 to the Financial
Statements), costs incurred for customer number portability since the merger
and charges for ongoing merger integration costs. Excluding these charges,
SBC's operating expenses increased $1,188, or 6.7%, in 1997 and $1,017, or
6.1%, in 1996. Components of total operating expenses, including percentage
changes from the prior year, are as follows:
- -------------------------------------------------------------------------------
Percent Change
---------------
1997 1996
1997 1996 1995 vs. vs.
1996 1995
- -------------------------------------------------------------------------------
Cost of services and $ 9,488 $ 8,250 $ 7,864 15.0% 4.9%
products
Selling, general and 7,276 5,250 4,694 38.6 11.8
administrative
Depreciation and 4,922 4,109 4,034 19.8 1.9
amortization
- ----------------------------------------------------------------
$ 21,686 $ 17,609 $ 16,592 23.2% 6.1%
===============================================================================
Cost of Services and Products reflects charges of $334 in 1997 relating to
SBC's strategic initiatives, operational reviews, costs incurred for
customer number portability since the merger and ongoing merger integration
costs; excluding these charges, expenses increased $904, or 11.0%, in 1997.
A significant part of this increase was caused by the introduction of PCS
operations during 1997. Other major factors contributing to the increase
included increases in employee compensation, including increases related to
force additions and contract labor, growth at Mobile Systems, network
expansion and maintenance and interconnection costs. Cost of services and
products increased in 1996 due primarily to increases in employee
compensation, growth at Mobile Systems, network expansion and maintenance,
and expenses related to local competition preparation and new business
initiatives, such as PCS, Internet services and network integration.
Selling, General and Administrative expense in 1997 reflects $1,952 of
charges relating to SBC's strategic initiatives, operational reviews and
ongoing merger integration costs. As discussed in Note 3 to the Financial
Statements, the most significant of these charges included shutdown of the
Advanced Communications Network (ACN), regulatory costs related to the
approval of the merger with SBC by California and Nevada regulators, and
reorganization initiatives. Excluding these charges, expenses increased
$74, or 1.4%, in 1997. Significantly increasing expenses was the
introduction of PCS operations during 1997. Other major factors
contributing to the increase included growth at Mobile Systems, expenses
related to new business initiatives, primarily voice messaging and Internet
services, and increases in employee compensation, sales agents commissions
and uncollectibles. These increases were partially offset by PAC's first
quarter 1997 $152 settlement gain associated with lump-sum pension payments
that exceeded the projected service and interest costs for 1996
retirements. Selling, general and administrative expense increased in 1996
due primarily to growth at Mobile Systems and increases in contracted
services, employee compensation and software costs. Expenses incurred at
PAC to prepare support systems for local competition and for new business
initiatives also contributed to the increase in 1996.
Depreciation and Amortization in 1997 reflects charges totaling $592 to
record impairment of plant and intangibles. As discussed in Note 3 to the
Financial Statements, the most significant of these impairments related to
the wireless digital TV operations in southern California, certain analog
switching equipment in California, certain rural and other
telecommunications equipment in Nevada, selected wireless equipment and
cable within commercial buildings in California. Excluding these charges,
depreciation and amortization increased $221, or 5.4%, in 1997 due
primarily to overall higher plant levels. Reduced depreciation beginning
with the second quarter of 1997 on analog switching equipment in California
at PacBell partially offset this increase. Depreciation and amortization
also increased in 1996 due primarily to overall higher plant levels.
Interest Expense increased $135, or 16.6%, in 1997 and decreased $145, or 15.2%,
in 1996. The 1997 increase was due primarily to increased average debt levels at
SBC. Also contributing to the increase was interest associated with the second
quarter 1997 one-time charges, primarily interest on the merger-approval costs.
The 1996 decrease was due to a change in PAC's capital structure, which replaced
a portion of interest expense with amounts recorded as Other Income (Expense) -
Net (see Note 10 to the Financial Statements), lower long-term debt levels in
SBC subsidiaries other than PAC, and capitalization of interest during
construction required by the discontinuance of regulatory accounting in the
third quarter of 1995. Under regulatory accounting, the Telephone Companies
accounted for capitalization of both interest and equity costs during periods of
construction as other income.
Equity in Net Income of Affiliates decreased $6 in 1997 and increased $87 in
1996. The 1997 decrease reflects decreased income from SBC's investment in
Telefonos de Mexico, S.A. de C.V. (Telmex), Mexico's national telecommunications
company. This lower income resulted from the change in the functional currency
used by SBC to record its interest in Telmex from the peso to the U.S. dollar
beginning in 1997 and SBC's reduced ownership percentage after the sale of
Telmex L shares. Results also reflect preoperating expenses in several
international investments including long-distance in France, Switzerland and
Israel, and cellular communications in Taiwan. These decreases were mainly
offset by income from SBC's May 1997 investment in Telkom SA Limited (Telkom) of
South Africa, whose results reflected strong growth and expense management, and
lower losses resulting from the reduced involvement in Tele-TV.
The 1996 increase reflects increased income from Telmex, due to the relative
stabilization of the peso compared to 1995 and net gains on international
affiliate transactions. Results for 1995 include losses on SBC's United Kingdom
cable television operations, which were accounted for under the equity method
prior to October 1995, and exchange losses on the non-peso denominated debt of
Telmex. Results for 1996 and 1995 also reflect reductions in the translated
amount of U.S. dollar earnings from Telmex's operations. Operational growth at
Telmex in both years somewhat offset these declines.
SBC's earnings from foreign affiliates will continue to be generally sensitive
to exchange rate changes in the value of the respective local currencies. SBC's
foreign investments are recorded under U.S. generally accepted accounting
principles (GAAP), which include adjustments for the purchase method of
accounting and exclude certain adjustments required for local reporting in
specific countries, such as inflation adjustments. SBC's equity earnings in 1998
will reflect SBC's investment in Telkom for a full year of operations (see Note
16 to the Financial Statements for discussion of the Telkom investment).
<PAGE>
Other Income (Expense) - Net decreased $5 in 1997 and $276 in 1996. Results for
1997 reflect $26 in second quarter charges related to SBC's strategic
initiatives, primarily writeoffs of nonoperating plant. Other decreases relate
primarily to the market valuation adjustment on certain SBC debt redeemable
either in cash or Telmex L shares and distributions paid on an additional $500
of Trust Originated Preferred Securities (TOPrS) sold by PAC in June 1996.
Partially offsetting these increased expenses were the gain recognized from the
sale of SBC's interests in Bellcore, royalty payments associated with software
developed by an affiliate and the gain on the sale of Telmex L shares. The
decrease in 1996 reflects the inclusion in 1995 of the gain recognized from the
merger of SBC's United Kingdom cable television operations into TeleWest (see
Note 16 to the Financial Statements) and interest income from tax refunds,
somewhat offset by expenses associated with the refinancing of long-term debt by
the Telephone Companies (see Note 9 to the Financial Statements). Additional
decreases in 1996 related to the reclassification of interest during
construction required by the discontinuance of regulatory accounting in the
third quarter of 1995 and the change in PAC's capital structure noted in the
discussion of Interest Expense (see Note 10 to the Financial Statements).
Income Tax expense decreased $1,097, or 56.0%, in 1997 and increased $441, or
29.0%, in 1996. Income taxes for 1997 reflect the tax effect of charges for
strategic initiatives resulting from SBC's comprehensive review of operations of
the merged company, the impact of several regulatory rulings during the second
quarter of 1997, costs incurred for customer number portability since the merger
and charges for ongoing merger integration costs. Excluding these items, income
taxes for 1997 were lower. Contributing to the decrease in income tax expense in
1997 was, among other items, realization of foreign tax credits. Income taxes
paid, net of refunds, reflect the impact of reduced tax payments due to
merger-related and integration costs incurred. The 1996 increase was due
primarily to higher income before income taxes. Taxes also increased in 1996
reflecting a full year's effects of the elimination of excess deferred taxes and
the reduction in the amortization of investment tax credits resulting from the
discontinuance of regulatory accounting, which occurred in the latter part of
1995.
Extraordinary Loss In 1995, SBC recorded an extraordinary loss of $6 billion
from the discontinuance of regulatory accounting. The loss included a reduction
in the net carrying value of telephone plant and the elimination of net
regulatory assets of SWBell and PacBell (see Note 2 to the Financial
Statements).
Cumulative Effect of Accounting Change As discussed in Note 1 to the Financial
Statements, PBDirectory changed its method of recognizing directory publishing
revenues and related expenses effective January 1, 1996. The cumulative
after-tax effect of applying the new method to prior years is recognized as of
January 1, 1996 as a one-time, non-cash gain applicable to continuing operations
of $90, or $0.05 per share. The gain is net of deferred taxes of $53. Management
believes this change to the issue basis method is preferable because it is the
method generally followed in the publishing industry, including Yellow Pages,
and better reflects the operating activity of the business. This accounting
change is not expected to have a significant effect on net income in future
periods.
<PAGE>
Operating Environment and Trends of the Business
Regulatory Environment
The telecommunications industry is in transition from a tightly regulated
industry overseen by multiple regulatory bodies, to a more incentive-based,
market driven industry monitored by state and federal agencies. The Telephone
Companies' wireline telecommunications operations remain subject to regulation
by the seven states in which they operate for intrastate services and by the FCC
for interstate services. In 1997, new price cap regulatory plans were
implemented for the Telephone Companies in Missouri and Nevada, and in Oklahoma,
legislation passed allowing alternative regulation. The Telephone Companies
under price cap regulation have the freedom to establish and modify prices for
some services as long as they do not exceed the price caps, as well as the
freedom to change prices for some services without regulatory approval.
Federal Regulation
During 1997, the FCC issued an Access Reform Order restructuring access charges
paid for interexchange carrier access to the Telephone Companies' networks. The
order raises the flat monthly end user charge for primary business lines, and
additional residence and business lines, and lowers the price caps on per minute
access charges for interstate long distance carriers. These changes, which took
effect in 1997 and January 1998, are supposed to shift sources of revenue from
carriers to end users without changing the total amount of revenue received by
the Local Exchange Carriers (LECs).
The FCC's price cap plan for the LECs provides for changes to be made annually
to the price caps for inflation, productivity and changes in other costs. In
1997 the Telephone Companies were ordered to begin using a 6.5% productivity
offset, with no sharing. Prior to 1997, there were three productivity offsets,
two of which provided for a sharing of profits above a specified earnings level
with the Telephone Companies' customers and a higher productivity offset which
did not include sharing. The Telephone Companies had elected the higher 5.3%
productivity offset without sharing.
With the passage of the Telecommunications Act of 1996 (Telecom Act), the FCC
has been conducting further proceedings in conjunction with access reform to
address a number of pricing and productivity issues, and is performing a broader
review of price cap regulation in the context of the increasingly more
competitive telecommunications environment. The Chairman of the FCC has
indicated that the FCC intends to act on these proceedings in 1998. The Telecom
Act and FCC actions taken to implement provisions of the Telecom Act are
discussed further under the heading "Competitive Environment."
Pursuant to the Telecom Act, the local coin rate in the payphone industry was
deregulated by the FCC on October 7, 1997, and LECs were required to remove any
direct or indirect subsidy of payphone service from their regulated
telecommunications operations. Removal of the subsidy caused the Telephone
Companies to raise local coin rates throughout their operating territories in
1997.
State Regulation
With the implementation of Nevada's price cap plan which eliminated the sharing
provision previously in effect, six of the seven state regulatory plans under
which the Telephone Companies operate do not include sharing. The California
price cap plan still includes sharing. However, there has been no sharing in
California in the last two years.
California The California Public Utility Commission's (CPUC) form of price caps
requires PacBell to submit an annual price cap filing to determine prices for
categories of services for each new year. The productivity factor used in
calculating price caps has been set equal to the inflation factor for the period
1996-1998. The price cap plan includes a sharing mechanism that requires PacBell
to share its earnings with customers above certain earnings levels. In December
1997, the CPUC adopted a decision on PacBell's 1997 price cap filing resulting
in a revenue reduction in 1998 of approximately $86 effective January 1, 1998.
The reduction reflects items accrued in the 1997 results of operations,
including, among other things, the rate reduction ordered in the CPUC decision
approving the SBC/PAC merger and the gain on the sale of PacBell's interest in
Bellcore. Because of these accruals, the order will not materially affect SBC's
results of operations in 1998.
In an April 1997 ruling, the CPUC reaffirmed that postretirement benefit costs
were appropriately recoverable in PacBell's price cap filings as exogenous
costs. The CPUC continued to allow recovery in 1998 consistent with the amount
requested by PacBell in an October 1997 filing. The CPUC also ordered a further
proceeding to address future procedures and amounts for recovery.
In May 1997, the FCC adopted new separations rules that shifted recovery of a
substantial amount of billing and collection costs to the interstate
jurisdiction. PacBell filed for a waiver of the requirement and was denied the
waiver in December 1997. As a result, PacBell could be required to refund an
annualized amount of approximately $21 to customers since July 1997, with
refunds commencing in 1999.
In 1996, the CPUC issued an order on universal service and established the CHCFB
to subsidize telephone service in California's high cost areas. The estimated
$352 cost of the program is expected to be collected from customers of all
telecommunications providers who will contribute to the fund through a 2.87%
surcharge on all bills for telecommunications services provided in California.
The surcharge became effective February 1, 1997. To maintain revenue neutrality,
PacBell will reduce its revenues dollar for dollar for amounts it will receive
from the fund. This reduction will occur through an across the board surcredit
on all products and services (except for residential basic exchange services and
contracts) or through permanent rate reductions for those services that
previously subsidized universal service. PacBell filed to reduce permanently
certain toll and access rates. Hearings were held in October 1997, and a
decision is expected in the second or third quarter of 1998.
PacBell expects to receive approximately $305 annually from the CHCFB fund based
on CPUC estimates of the cost of providing universal service. PacBell believes
the new program underestimates the cost of providing universal service and that
the average cost of providing service is up to 33% higher per line, per month
than the CPUC estimate. As a result, subsidies for universal service will remain
in the prices for PacBell's competitive services, which may place it at a
competitive disadvantage.
In 1992, PacBell entered into a settlement with tax authorities and others which
fixed a specific methodology for valuing utility property for tax purposes for a
period of eight years. As a result, the CPUC opened an investigation to
determine if any resulting property tax savings should be returned by PacBell to
its customers. Intervenors have asserted that as much as $20 of annual property
tax savings should be treated as an exogenous cost reduction in PacBell's annual
price cap filings and that as much as $90 in past property tax savings as of
December 31, 1997, plus interest, should be returned to customers. PacBell
believes that, under the CPUC's regulatory framework, any property tax savings
qualify only as a component of shareable earnings and not as an exogenous cost.
In an interim opinion issued in June 1995, the CPUC ruled in favor of
intervenors, but decided to defer a final decision on the matter pending
resolution in a separate proceeding of the criteria for exogenous cost treatment
under its regulatory framework. To date, the CPUC has taken no further action on
the issue.
<PAGE>
More than 120 applications for certification to provide competitive local
service have been approved by the CPUC, with over 25 more applications pending
approval. As a result, PacBell expects competition to continue to develop for
local service, but the financial impact of this competition cannot be reasonably
estimated at this time.
Texas The Public Utility Regulatory Act, which became effective in May 1995
(PURA), allows SWBell and other LECs to elect to move from rate of return
regulation to price regulation with elimination of earnings sharing. In
September 1995, SWBell notified the Texas Public Utility Commission (TPUC) that
it elected incentive regulation under the new law. Basic local service rates are
capped at existing levels for four years following the election. The TPUC is
prohibited from reducing switched access rates charged by LECs to interexchange
carriers while rates are capped.
LECs electing price regulation must commit to network and infrastructure
improvement goals, including expansion of digital switching and advanced
high-speed services to qualifying public institutions, such as schools,
libraries and hospitals, requesting the services. PURA also established an
infrastructure grant fund for use by public institutions in upgrading their
communications and computer technology. PURA provided for a total fund
assessment of $150 annually on all telecommunications providers in Texas for a
ten-year period. The 1997 Texas legislative session changed the funding for the
infrastructure grant from annually collecting $150 for ten years to a flat rate
(1.25%) applied to all telecommunications providers' sales taxable revenues. The
law also provides a cap of $1,500 for the life of the fund. SWBell's annual
payments will increase from the current level in 1997 of $36 per year to
approximately $50 for each of the next three years. Due to the industry's growth
in revenues, the fund should be completely funded before the original ten years.
PURA establishes local exchange competition by allowing other companies that
desire to provide local exchange services to apply for certification by the
TPUC, subject to certain build-out requirements, resale restrictions and minimum
service requirements. PURA provides that SWBell will remain the default carrier
of "1 plus" intraLATA long-distance traffic until SWBell is allowed to carry
interLATA long-distance. In 1996, MCI Communications Corporation (MCI) and AT&T
Corp. (AT&T) sued the state of Texas, alleging that PURA violates the Texas
state constitution, and claiming that PURA establishes anticompetitive barriers
designed to prevent MCI, AT&T and Sprint Corporation (Sprint) from providing
local services within Texas. The FCC, also in response to petitions filed by
AT&T and MCI, preempted and voided portions of PURA that required certain new
entrants to build telephone networks to cover a 27-square-mile area in any
market they entered. Furthermore, the FCC also preempted rules that excluded
competitors from entering markets with fewer than 31,000 access lines and which
made resale of Centrex phone services subject to a limited property restriction.
AT&T and MCI have dismissed their suits regarding this matter. In October 1997,
SWBell filed with the FCC a Petition for Reconsideration regarding the
preemption of the property restriction for Centrex services.
More than 170 applications for certification to provide competitive local
service have been approved by the TPUC, with over 25 more applications pending
approval. As a result, SWBell expects competition to continue to develop for
local service, but the financial impact of this competition cannot be reasonably
estimated at this time.
Missouri Effective September 26, 1997, the Missouri Public Service Commission
(MPSC) determined that SWBell is now subject to price cap regulation. Prices in
effect as of December 31, 1996 are the initial maximum allowable rates for
services and cannot be adjusted until January 1, 2000 for basic and access
services and until January 1, 1999 for non-basic services. On an exchange basis
where a competitor begins operations, the January 1, 1999 freeze on maximum
allowable rates for non-basic services is removed. After those dates, caps for
basic and access services may be adjusted based on one of two government indices
while caps for non-basic services may be increased up to 8% per year. In an
exchange where competition for basic local service exists for five years,
services will be declared competitive and subject to market pricing unless the
MPSC finds effective competition does not exist. The Office of Public Counsel
and MCI have sought judicial review of the MPSC determination.
Oklahoma Oklahoma enacted legislation, effective July 1, 1997, which allows for
alternative regulation in Oklahoma for telecommunications providers. Key
provisions of the new law allow SWBell to apply for alternative regulation at
any time, impose a restriction against the Oklahoma Corporation Commission (OCC)
initiating a rate case until February 5, 2001, establish a Universal Service
Fund (USF), and require SWBell to keep intrastate access rates at parity with
interstate rates. SWBell is allowed to seek partial recovery of the access rate
reductions from the USF. In addition, the new law allows for streamlined tariff
processing procedures and establishes a framework to have services declared
competitive and eventually deregulated.
Competitive Environment
Competition continues to increase for telecommunication and information
services. Recent changes in legislation and regulation have increased the
opportunities for alternative service providers offering telecommunications
services. Technological advances have expanded the types and uses of services
and products available. As a result, SBC faces increasing competition in
significant portions of its business.
Domestic
On February 8, 1996, the Telecom Act was enacted into law. The Telecom Act is
intended to address various aspects of competition within, and regulation of,
the telecommunications industry. The Telecom Act provides that all
post-enactment conduct or activities which were subject to the consent decree
issued at the time of AT&T divestiture of the Regional Holding Companies (RHCs),
referred to as the Modification of Final Judgment (MFJ), are now subject to the
provisions of the Telecom Act. In April 1996, the United States District Court
for the District of Columbia issued its Opinion and Order terminating the MFJ
and dismissing all pending motions related to the MFJ as moot. This ruling
effectively ended 13 years of RHC regulation under the MFJ. Among other things,
the Telecom Act also defines conditions SBC must comply with before being
permitted to offer interLATA long-distance service within California, Texas,
Missouri, Kansas, Oklahoma, Arkansas and Nevada (regulated operating areas) and
establishes certain terms and conditions intended to promote competition for the
Telephone Companies' local exchange services.
Under the Telecom Act, SBC may immediately offer interLATA long-distance outside
the regulated operating areas and over its wireless network both inside and
outside the regulated operating areas. Before being permitted to offer landline
interLATA long-distance service in any state within the regulated operating
areas, SBC must apply for and obtain state-specific approval from the FCC. The
FCC's approval, which involves consultation with the United States Department of
Justice and appropriate state commissions, requires favorable determinations
that the Telephone Companies have entered into interconnection agreement(s) that
satisfy a 14-point "competitive checklist" with predominantly facilities-based
carrier(s) that serve residential and business customers or, alternatively, that
the Telephone Companies have a statement of terms and conditions effective in
that state under which they offer the "competitive checklist" items. The FCC
must also make favorable public interest and structural separation
determinations in connection with such applications.
In July 1997, SBC brought suit in the U.S. District Court for the Northern
District of Texas (U.S. District Court), seeking a declaration that parts of the
Telecom Act are unconstitutional on the grounds that they improperly
discriminate against the Telephone Companies by imposing restrictions that
prohibit the Telephone Companies by name from offering interLATA long-distance
and other services that other LECs are free to provide. The suit challenged only
those portions of the Telecom Act that exclude the Telephone Companies from
competing in certain lines of business. On December 31, 1997 the U.S. District
Court ruled in favor of SBC and declared certain sections of the Telecom Act
unconstitutional, thereby allowing SBC to enter interLATA long-distance in the
Telephone Companies' operating areas. If upheld, this ruling is expected to
speed competition in the interLATA long-distance markets in SBC's regulated
operating areas. The FCC and competitor intervenors have sought and received a
stay of the decision by the U.S. District Court.
In August 1996, the FCC issued rules by which competitors could connect with
LECs' networks, including those of the Telephone Companies. Among other things,
the rules addressed unbundling of network elements, pricing for interconnection
and unbundled elements (Pricing Provisions), and resale of retail
telecommunications services. The FCC rules were appealed by numerous parties,
including SBC.
In July 1997, the United States Court of Appeals for the Eighth Circuit in St.
Louis (8th Circuit) held that the FCC did not have authority to promulgate rules
related to the pricing of local intrastate telecommunications and that its rules
in that regard were invalid. The 8th Circuit also overturned the FCC's rules
which allowed competitors to "pick and choose" among the terms and conditions of
approved interconnection agreements. In October 1997, the 8th Circuit issued a
subsequent decision clarifying that the Telecom Act does not require the
incumbent LECs to deliver network elements to competitors in anything other than
completely unbundled form.
In September 1997, a number of parties including SBC, filed petitions to enforce
the July 1997 ruling of the 8th Circuit that the right to set local exchange
prices, including the pricing methodology used, is reserved exclusively to the
states. The petitions responded to the FCC's rejection of Ameritech
Corporation's interLATA long-distance application in Michigan in which the FCC
stated it intended to apply its own pricing standards to RHC interLATA
applications. The petitioners asserted the FCC was violating state authority. On
January 22, 1998 the 8th Circuit ordered the FCC to abide by the July 1997
ruling and reiterated that the FCC cannot use interLATA long-distance
applications made by SBC and other RHC wireline subsidiaries wishing to provide
interLATA long-distance to attempt to re-impose the pricing standards ruled
invalid in July 1997 by the 8th Circuit. On January 26, 1998, the U.S. Supreme
Court agreed to hear all appeals of the July 1997 8th Circuit decision.
The effects of the FCC rules are dependent on many factors including, but not
limited to: the ultimate resolution of the pending appeals; the number and
nature of competitors requesting interconnection, unbundling or resale; and the
results of the state regulatory commissions' review and handling of related
matters within their jurisdictions. Accordingly, SBC is not able to assess the
impact of the FCC rules at this time.
Landline Local Service
Recent state legislative and regulatory developments also allow increased
competition for local exchange services. Companies wishing to provide
competitive local service have filed numerous applications with state
commissions throughout the Telephone Companies' regulated operating areas, and
the commissions of each state have been approving these applications since late
1995. Under the Telecom Act, companies seeking to interconnect to the Telephone
Companies' networks and exchange local calls must enter into interconnection
agreements with the Telephone Companies. These agreements are then subject to
approval by the appropriate state commissions. SBC has reached over 250
interconnection and resale agreements with competitive local service providers,
and most have been approved by the relevant state commissions. AT&T and other
competitors are reselling SBC local exchange services, and as of December 31,
1997, there were approximately 500,000 SBC access lines supporting services of
resale competitors throughout the Telephone Companies' regulated operating
areas, most of them in Texas and California. Many competitors have placed
facilities in service and have begun advertising campaigns and offering
services. Beginning in 1996, SWBell was also granted facilities-based and resale
operating authority in territories served by other LECs. SWBell began local
exchange service offerings to these areas during 1997.
The CPUC authorized facilities-based local services competition effective
January 1996 and resale competition effective March 1996. While the CPUC has
established local competition rules and interim prices, several issues still
remain to be resolved, including final rates for resale and LEC provisioning and
pricing of certain network elements to competitors. In order to provide services
to resellers, PacBell uses established operating support systems and has
implemented electronic ordering systems and a customer care/billing center.
Costs to implement local competition, especially number portability, are
substantial. The CPUC has set a schedule to review PacBell's recovery of its
local competition implementation costs incurred since January 1, 1996.
The CPUC has issued orders regarding the implementation of competition in 1997.
Some of the key ones include permitting the resale of Centrex services to
businesses only, prohibiting aggregation of customers to obtain toll discounts,
enforcing optional calling plans retail tariff restrictions on resale,
prohibiting sharing of certain Centrex features to route intraLATA calls,
adopting no discount on private line resale, ordering resale of voice mail to
competitors, and allowing collection of intrastate access charges on unbundled
network elements. The CPUC order on resale of voice mail service was stayed and
is being reviewed.
In December 1997, the TPUC set rates that SWBell may charge for access and
interconnection to its telephone network. The TPUC decision sets pricing for
dozens of network components and completes a consolidated arbitration between
SWBell and six of its competitors, including AT&T and MCI. SWBell has
TPUC-approved resale and interconnection agreements with approximately 80 local
service providers, with approximately 15 pending approval.
In Missouri, the MPSC issued orders on a consolidated arbitration hearing with
AT&T and MCI and on selected items with Metropolitan Fiber Systems (MFS). Among
other terms, the orders established discount rates for resale of SWBell services
and prices for unbundled network elements. SWBell appealed the interconnection
agreement resulting from the first arbitration proceeding on November 5, 1997; a
decision is still pending. A second arbitration process to address other
interconnection issues with AT&T has concluded, and the MPSC ordered that an
agreement be filed. SWBell has sought reconsideration of this order.
As a result of the Telecom Act and conforming interconnection agreements, the
Telephone Companies expect increased competitive pressure in 1998 and beyond
from multiple providers in various markets including facilities-based
Competitive Local Exchange Carriers (CLECs), interexchange carriers (IXCs) and
resellers. At this time, management is unable to assess the effect of
competition on the industry as a whole, or financially on SBC, but expects both
losses of market share in local service and gains resulting from new business
initiatives, vertical services and new service areas.
Wireless Local Service
In 1993, the FCC adopted an order allocating radio spectrum and licenses for
PCS. PCS utilizes wireless telecommunications digital technology at a higher
frequency radio spectrum than cellular. Like cellular, it is designed to permit
access to a variety of communications services regardless of subscriber
location. In an FCC auction, which concluded in March 1995, PCS licenses were
awarded in 51 major markets. SBC or affiliates acquired PCS licenses in the
Major Trading Areas (MTAs) of Los Angeles-San Diego, California; San
Francisco-Oakland-San Jose, California; Memphis, Tennessee; Little Rock,
Arkansas; and Tulsa, Oklahoma. The California licenses cover substantially all
of California and Nevada. SBC is currently operational in all of its major
California-Nevada markets and Tulsa, Oklahoma. During 1996, SBC received several
AT&T cellular networks in Arkansas in exchange for SBC's PCS licenses in
Memphis, Tennessee and Little Rock, Arkansas and other consideration.
In November 1996, Pacific Bell Mobile Services (PBMS) conducted an extensive PCS
trial in San Diego, California. Service was formally launched in San Diego,
California in January 1997, in Las Vegas, Nevada in February 1997, in
Sacramento, California in March 1997, in San Francisco in May 1997, in Los
Angeles in July 1997 and in Bakersfield, California in October 1997. The network
incorporates the Global System for Mobile Communications (GSM) standard which is
widely used in Europe. PBMS is selling PCS as an off-the-shelf product in retail
stores across California and Nevada. Significant competition exists,
particularly from the two established cellular companies in each market.
In an FCC auction which concluded in January 1997, SBC acquired eight additional
PCS licenses for Basic Trading Areas (BTAs) that are within the five-state area.
SBC also has state approved interconnection agreements to receive reciprocal
compensation from interexchange carriers and other local service providers
accessing its wireless networks in all states where it provides wireless
services.
Companies granted licenses in MTAs and BTAs where SBC also provides service
include subsidiaries and affiliates of AT&T, Sprint and other RHCs. Significant
competition from PCS providers exists in SBC's major markets. Competition has
been based upon both price and product packaging and has contributed to SBC's
decline in average subscriber revenue per wireless customer.
Long-Distance
Competition continues to intensify in the Telephone Companies' intraLATA
long-distance markets. It is estimated that providers other than PacBell now
serve more than half of the business intraLATA long-distance customers in
PacBell's service areas.
The OCC recommended that SBC be allowed to offer interLATA long-distance in
Oklahoma. Notwithstanding that recommendation, the FCC denied SBC such authority
and SBC has appealed the decision in the D.C. Court of Appeals where the case is
pending.
Since the Telecom Act, SBC has entered the wireless long-distance markets, and
offers wireless long-distance service in all of its wireless service areas. In
addition, through affiliates SBC also offers landline interLATA long-distance
services to customers in selected areas outside the Telephone Companies'
operating areas.
Other
In the future, it is likely that additional competitors will emerge in the
telecommunications industry. Cable television companies and electric utilities
have expressed an interest in, or already are, providing telecommunications
services. As a result of recent and prospective mergers and acquisitions within
the industry, SBC may face competition from entities offering both cable TV and
telephone services in the Telephone Companies' regulated operating areas.
Interexchange carriers have been certified to provide local service, and a
number of other major carriers have publicly announced their intent to provide
local service in certain markets, some of which are in the Telephone Companies'
regulated operating areas. Public communications services such as public
payphone services will also face increased competition as a result of federal
deregulation of the payphone industry.
SBC is aggressively representing its interests regarding competition before
federal and state regulatory bodies, courts, Congress and state legislatures.
SBC will continue to evaluate the increasingly competitive nature of its
business, and develop appropriate competitive, legislative and regulatory
strategies.
International
Telmex was granted a concession in 1990, which expired in August 1996, as the
sole provider of long-distance services in Mexico. In 1995, the Mexican Senate
and Chamber of Deputies passed legislation providing for the introduction of
competition into the Mexican long-distance market. This legislation specified
that there would be an unlimited number of long-distance concessions and that
Telmex was required to provide 60 interconnection points by January 1, 1997, and
more than 200 interconnection points by the year 2000. Several large competitors
have received licenses to compete with Telmex and begun operations, including a
joint venture between AT&T and Alfa S.A. de C.V., a Mexican consortium, and
Avantel, S.A., a joint venture between MCI and Grupo Financiero Banamex-Accival,
Mexico's largest financial group. Balloting for presubscription of long-distance
service is currently occurring among Telmex's customers in selected areas. At
the end of 1997, Telmex had retained about 75% of its long-distance customers in
areas that had completed balloting.
Other Business Matters
Merger Agreement On January 5, 1998, SBC and Southern New England
Telecommunications Corporation (SNET) jointly announced a definitive agreement
to merge an SBC subsidiary with SNET, in a transaction in which each share of
SNET common stock will be exchanged for 1.7568 shares of SBC common stock
(equivalent to approximately 120 million shares, or 6.5% of SBC's outstanding
shares at December 31, 1997). After the merger, SNET will be a wholly-owned
subsidiary of SBC. The transaction is intended to be accounted for as a pooling
of interests and to be a tax-free reorganization. The merger is subject to
certain regulatory approvals as well as approval by the shareowners of SNET at a
special meeting expected to be held on March 27, 1998. If approvals are granted,
the transaction is expected to close by the end of 1998.
Restructuring Reserve In December 1993, PAC established a reserve to record the
incremental cost of force reductions associated with restructuring PAC's
business processes, of $1,431 in expenses, which impacted net income by $861.
This restructuring was expected to allow PacBell to eliminate approximately
10,000 employee positions through 1997, net of approximately 4,000 new positions
expected to be created. For the three-year period 1994 through 1996, net force
reductions totalled 9,168.
This table sets forth the status and activity of this reserve during that
three-year period:
- -------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------
Balance - beginning of year $ 228 $ 819 $ 1,097
Charges: cash outlays (195) (372) (216)
non-cash 64 (219) (62)
- -------------------------------------------------------------------------
Balance - end of year $ 97 $ 228 $ 819
=========================================================================
The remaining 1996 reserve of $97 was used during 1997. As a result of the new
initiatives arising from the merger with PAC, net force changes during 1997 are
not meaningful to the restructuring reserve.
<PAGE>
Acquisitions and Dispositions In addition to the items discussed in Note 16 to
the Financial Statements, SBC has made several acquisitions and dispositions
since 1995.
In 1995, SBC made the following acquisitions: a wireless system serving
Watertown, New York, and 100% of the stock of Cross Country Wireless (CCW), a
wireless cable television operator providing service to 40,000 customers in
Riverside, California and with licenses to provide service in Los Angeles,
Orange County and San Diego. The CCW acquisition involved the issuance of stock
valued at approximately $120 and assumption of $55 in debt. Additionally, SBC
made the following equity investments in 1995: a $317 investment to acquire 40%
of VTR S.A. (VTR), a privately owned Chilean telecommunications holding company
which was 51% owned by Grupo Luksic (Luksic), a large Chilean conglomerate, and
an investment in a South African wireless company.
In 1996, SBC made the following additional investments: an investment to
maintain its indirect 10% ownership in a French cellular company to offset
dilution of its interest resulting from other equity sales, and an increase in
its holding in VTR to 49% through the purchase of shares from another minority
shareholder. Also in 1996, SBC and the other RHCs reached an agreement to sell
Bellcore. This sale was finalized in 1997.
During 1997, SBC contributed its French cellular holdings and an additional $240
to acquire a 15% interest in Cegetel, S.A, a newly formed company which is
intended to provide a broad base of telecommunications services throughout
France. Luksic exercised an option to purchase shares of VTR from SBC, reducing
SBC's ownership to 44%; in December 1997, VTR sold its wireless services
operations. SBC also sold its interests in an Australian directory publisher in
1997.
During the third quarter of 1997, SBC reached agreement to sell its cable
television properties in Montgomery County, Maryland and Arlington, Virginia, as
well as its purchase option to invest in cable television operations in Chicago,
Illinois. These transactions are expected to close during 1998.
Throughout 1997 and in February 1998, SBC sold portions of its Telmex L shares
so that SBC's total equity investment remained below 10% of Telmex's total
equity capitalization.
None of these transactions had a material effect on SBC's financial results in
1997, 1996 or 1995, nor does management expect them to have a material effect on
SBC's financial position or results of operations in 1998.
Strategic Realignment In July 1995, SBC announced a strategic realignment of
functions, and recognized $139 in selling, general and administrative expenses.
These expenses include postemployment benefits for approximately 2,400 employees
arising from the future consolidation of operations, streamlining support and
administrative functions and integrating financial systems. Full implementation
of the realignment had been delayed due to the merger with PAC, and the
realignment plans and all remaining liabilities were either integrated with or
superseded by the post-merger initiatives. The charge reduced net income for
1995 by approximately $88.
Liquidity and Capital Resources
Capital Expenditures and Other Commitments
To provide high-quality communications services to its customers, SBC,
particularly its landline and wireless operations, must make significant
investments in property, plant and equipment. The amount of capital investment
is influenced by demand for services and products, continued growth and
regulatory commitments.
SBC's capital expenditures totaled $5,766, $5,481 and $4,338 for 1997, 1996 and
1995. The Telephone Companies' capital expenditures increased 7% in 1997 and 26%
in 1996 due primarily to demand-related growth, network upgrades,
customer-contracted requirements, ISDN projects, PCS build-out and SWBell's
regulatory commitments.
In 1998, management expects total capital spending to decrease slightly from
1997, to between $5,500 and $5,700. Capital expenditures in 1998 will relate
primarily to the continued evolution of the Telephone Companies' networks,
including amounts agreed to under regulation plans at SWBell, and continued
build-out of Mobile Systems' markets and PBMS. SBC expects to fund ongoing
capital expenditures with cash provided by operations.
SWBell continues to make additional network and infrastructure improvements over
periods ranging through 2001 to satisfy regulatory commitments. Total capital
expenditures under these commitments will vary based on actual demand of
potential end users. SWBell anticipates spending approximately $100 in 1998
associated with these commitments.
PacBell has purchase commitments of approximately $190 remaining in connection
with its previously announced program for deploying an all-digital switching
platform with ISDN and SS-7 capabilities.
Over the next few years, SBC expects to incur significant capital and software
expenditures for customer number portability, which allows customers to switch
to new local competitors and keep the same phone number, and interconnection.
SBC expects capital costs and expenses associated with customer number
portability to total up to $1.2 billion on a pre-tax basis over the next four
years. Full recovery of customer number portability costs is required under the
Telecom Act; however, the FCC has not yet determined when or how those
significant costs will be recovered. SBC has filed a tariff for recovery of
these costs. No action has been taken by the FCC on this tariff, pending the
issuance of its order on customer number portability. SBC is unable to predict
the likelihood of the FCC permitting the tariffs to become effective. Capital
costs and expenses associated with interconnection will vary based on the number
of competitors seeking interconnection, the particular markets entered and the
number of customers served by those competitors. Accordingly, SBC is currently
unable to reasonably estimate the future costs that will be incurred associated
with interconnection.
SBC currently operates numerous date-sensitive computer applications and systems
throughout its business. As the century change approaches, it will be essential
for SBC to ensure that these systems properly recognize the year 2000 and
continue to process critical operational and financial information. SBC has
established processes for evaluating and managing the risks and costs associated
with preparing its systems and applications for the year 2000 change. Total
expenses for this project have been estimated to be less than $250 over the next
three years. SBC expects to substantially complete modifications and incur most
of these costs during 1998 to allow for thorough testing before the year 2000.
Dividends Declared
Dividends declared by the Board of Directors of SBC (Board) were $0.895 per
share in 1997, $0.86 per share in 1996, and $0.825 per share in 1995. These per
share amounts do not include dividends declared and paid by PAC prior to the
merger. The total dividends paid by SBC and PAC were $1,638 in 1997, $1,680 in
1996 and $1,933 in 1995. Pursuant to the terms of the merger agreement, PAC
reduced its dividend beginning in the second quarter of 1996. The lower second
and third quarter dividends paid in 1996 improved 1996 cash flow by
approximately $195. SBC's dividend policy considers both the expectations and
requirements of shareowners, internal requirements of SBC and long-term growth
opportunities. On January 30, 1998, the Board declared a first quarter 1998
dividend of $0.23375 per share.
Cash, Lines of Credit and Cash Flows
SBC had $398 of cash and cash equivalents available at December 31, 1997.
Commercial paper borrowings as of December 31, 1997, totaled $1,268. SBC has
entered into agreements with several banks for lines of credit totaling $2,475,
all of which may be used to support commercial paper borrowings (see Note 9 to
the Financial Statements). SBC had no borrowings outstanding under these lines
of credit as of December 31, 1997.
During 1997, as in 1996 and 1995, SBC's primary source of funds continued to be
cash generated from operations, as shown in the Consolidated Statements of Cash
Flows. Net cash provided by operating activities exceeded SBC's construction and
capital expenditures during 1997, as in 1996 and 1995; this excess is referred
to as free cash flow, a supplemental measure of liquidity. SBC generated free
cash flow of $1,204, $1,935 and $2,452 in 1997, 1996 and 1995.
During 1996 PAC issued $1,000 of TOPrS, $500 at 7.56% in January 1996 and $500
at 8.5% in June 1996 (see Note 10 to the Financial Statements). The proceeds
were used to retire outstanding short-term debt, primarily commercial paper that
had increased significantly during 1995.
During 1997, 1996 and 1995, the Telephone Companies refinanced long-term debt
with an aggregate principal amount of $964.
Total Capital
SBC's total capital consists of debt (long-term debt and debt maturing within
one year), TOPrS and shareowners' equity. Total capital increased $958 in 1997
and $1,844 in 1996. The increase in 1997 was due to higher debt levels and 1997
earnings. The increase in 1996 was due to PAC's increased financing requirements
and the reinvestment of earnings, partially offset by the acquisition of
treasury shares.
Debt Ratio
SBC's debt ratio was 56.2%, 55.5% and 61.7% at December 31, 1997, 1996 and 1995.
The debt ratio is affected by the same factors that affect total capital. For
1995, the decrease in equity caused by the discontinuance of regulatory
accounting increased the debt ratio by 13.2 percentage points.
Employee Stock Ownership Plans
See Note 13 to the Financial Statements.
<PAGE>
<TABLE>
SBC Communications Inc.
Consolidated Statements of Income
Dollars in millions except per share amounts
- --------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues
Local service $ 12,602 $ 11,389 $ 10,365
Network access 5,815 5,831 5,514
Long-distance service 2,115 2,240 2,072
Directory advertising 2,111 1,985 1,984
Other 2,213 2,000 1,777
- --------------------------------------------------------------------------------------------
Total operating revenues 24,856 23,445 21,712
- --------------------------------------------------------------------------------------------
Operating Expenses
Cost of services and products 9,488 8,250 7,864
Selling, general and administrative 7,276 5,250 4,694
Depreciation and amortization 4,922 4,109 4,034
- --------------------------------------------------------------------------------------------
Total operating expenses 21,686 17,609 16,592
- --------------------------------------------------------------------------------------------
Operating Income 3,170 5,836 5,120
- --------------------------------------------------------------------------------------------
Other Income (Expense)
Interest expense (947) (812) (957)
Equity in net income of affiliates 201 207 120
Other income (expense) - net (87) (82) 194
- --------------------------------------------------------------------------------------------
Total other income (expense) (833) (687) (643)
- --------------------------------------------------------------------------------------------
Income Before Income Taxes, Extraordinary Loss and
Cumulative Effect of Accounting Change 2,337 5,149 4,477
- --------------------------------------------------------------------------------------------
Income taxes 863 1,960 1,519
- --------------------------------------------------------------------------------------------
Income Before Extraordinary Loss and Cumulative
Effect of Accounting Change 1,474 3,189 2,958
- --------------------------------------------------------------------------------------------
Extraordinary Loss from Discontinuance of Regulatory
Accounting, net of tax - - (6,022)
Cumulative Effect of Accounting Change, net of tax - 90 -
- --------------------------------------------------------------------------------------------
Net Income (Loss) $ 1,474 $ 3,279 $ (3,064)
- --------------------------------------------------------------------------------------------
Earnings Per Common Share: *
Income Before Extraordinary Loss and Cumulative
Effect of Accounting Change $ 0.81 $ 1.73 $ 1.61
Net Income (Loss) $ 0.81 $ 1.78 $ (1.66)
- --------------------------------------------------------------------------------------------
Earnings Per Common Share-Assuming Dilution: *
Income Before Extraordinary Loss and Cumulative
Effect of Accounting Change $ 0.80 $ 1.72 $ 1.60
Net Income (Loss) $ 0.80 $ 1.77 $ (1.66)
- --------------------------------------------------------------------------------------------
<FN>
* Restated to reflect two-for-one stock split declared January 30, 1998.
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SBC Communications Inc.
Consolidated Balance Sheets
Dollars in millions except per share amounts
- --------------------------------------------------------------------------------------
December 31,
---------------------------
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 398 $ 314
Short-term cash investments 320 432
Accounts receivable - net of allowances for
uncollectibles of $395 and $311 5,015 4,684
Prepaid expenses 349 287
Deferred income taxes 622 201
Deferred charges 82 102
Other current assets 276 251
- --------------------------------------------------------------------------------------
Total current assets 7,062 6,271
- --------------------------------------------------------------------------------------
Property, Plant and Equipment - Net 27,339 26,080
- --------------------------------------------------------------------------------------
Intangible Assets - Net of Accumulated Amortization of
$1,002 and $611 3,269 3,589
- --------------------------------------------------------------------------------------
Investments in Equity Affiliates 2,740 1,964
- --------------------------------------------------------------------------------------
Other Assets 1,722 1,581
- --------------------------------------------------------------------------------------
Total Assets $ 42,132 $ 39,485
- --------------------------------------------------------------------------------------
Liabilities and Shareowners' Equity
Current Liabilities
Debt maturing within one year $ 1,953 $ 2,335
Accounts payable and accrued liabilities 7,888 6,584
Dividends payable 411 393
- --------------------------------------------------------------------------------------
Total current liabilities 10,252 9,312
- --------------------------------------------------------------------------------------
Long-Term Debt 12,019 10,930
- --------------------------------------------------------------------------------------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 1,639 853
Postemployment benefit obligation 4,929 5,070
Unamortized investment tax credits 417 498
Other noncurrent liabilities 1,984 2,181
- --------------------------------------------------------------------------------------
Total deferred credits and other noncurrent liabilities 8,969 8,602
- --------------------------------------------------------------------------------------
Corporation-obligated mandatorily redeemable preferred
securities of subsidiary trusts# 1,000 1,000
- --------------------------------------------------------------------------------------
Shareowners' Equity
Preferred shares ($1 par value, 10,000,000 authorized:
none issued) - -
Common shares ($1 par value, 2,200,000,000 authorized:
issued 1,867,022,568* at December 31, 1997 and 1,867,545,248*
at December 31, 1996) 934 934
Capital in excess of par value 9,418 9,422
Retained earnings 1,146 1,297
Guaranteed obligations of employee stock ownership plans (183) (229)
Deferred Compensation - LESOP trust (119) (161)
Foreign currency translation adjustment (574) (637)
Treasury shares (29,741,356* at December 31, 1997 and
41,233,878* at December 31, 1996, at cost) (730) (985)
- --------------------------------------------------------------------------------------
Total shareowners' equity 9,892 9,641
- --------------------------------------------------------------------------------------
Total Liabilities and Shareowners' Equity $ 42,132 $ 39,485
- --------------------------------------------------------------------------------------
<FN>
* Restated to reflect two-for-one stock split declared January 30, 1998.
# The trusts contain assets of $1,030 in principal amount of the Subordinated
Debentures of Pacific Telesis Group.
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SBC Communications Inc.
Consolidated Statements of Cash Flows
Dollars in millions, increase (decrease) in cash and cash
equivalents
- -------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 1,474 $ 3,279 $ (3,064)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,922 4,109 4,034
Undistributed earnings from investments in equity
affiliates (100) (138) (58)
Provision for uncollectible accounts 523 395 346
Amortization of investment tax credits (81) (80) (95)
Deferred income tax expense 215 626 609
Extraordinary loss, net of tax - - 6,022
Cumulative effect of accounting change, net of tax - (90) -
Changes in operating assets and liabilities:
Accounts receivable (854) (765) (463)
Other current assets (69) (50) 77
Accounts payable and accrued liabilities 1,400 632 (76)
Other - net (460) (502) (542)
- -------------------------------------------------------------------------------------------
Total adjustments 5,496 4,137 9,854
- -------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 6,970 7,416 6,790
- -------------------------------------------------------------------------------------------
Investing Activities
Construction and capital expenditures (5,766) (5,481) (4,338)
Investments in affiliates (26) (74) (54)
Purchase of short-term investments (916) (1,005) (704)
Proceeds from short-term investments 1,029 816 587
Dispositions 578 96 14
Acquisitions (1,115) (442) (1,186)
- -------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (6,216) (6,090) (5,681)
- -------------------------------------------------------------------------------------------
Financing Activities
Net change in short-term borrowings with original
maturities of three months or less (505) (977) 1,402
Issuance of other short-term borrowings 1,079 209 91
Repayment of other short-term borrowings (805) (134) (91)
Issuance of long-term debt 1,498 989 981
Repayment of long-term debt (506) (408) (1,086)
Early extinguishment of debt and related call premiums - - (465)
Issuance of trust originated preferred securities - 1,000 -
Purchase of fractional shares (15) - -
Issuance of common shares - 111 74
Purchase of treasury shares (80) (650) (216)
Issuance of treasury shares 293 52 82
Dividends paid (1,622) (1,664) (1,814)
Other (7) (106) -
- -------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (670) (1,578) (1,042)
- -------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 84 (252) 67
- -------------------------------------------------------------------------------------------
Cash and cash equivalents beginning of year 314 566 499
- -------------------------------------------------------------------------------------------
Cash and Cash Equivalents End of Year $ 398 $ 314 $ 566
- -------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
SBC Communications Inc.
Consolidated Statements of Shareowners' Equity
Dollars in millions except per share amounts
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Guaranteed Deferred
Obligations Compensation
of Employee Leveraged Foreign
Common Shares Capital in Retained Stock Employee Stock Currency Treasury Shares
------------- Excess of Earnings Ownership Ownership Translation ----------------
Shares Amount Par Value (Deficit) Plans Trust Adjustment Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 930,665,766 $ 931 $ 9,258 $ 4,665 $ (315) $ (306) $ (363) (11,401,628) $(463)
Net income (loss) for the year
($(1.66) per share*) - - - (3,064) - - - - -
Dividends to shareowners
($0.825 per share*) - - - (1,933) - - - - -
Reduction of debt associated with
Employee Stock Ownership Plans - - - - 43 - - - -
Cost of LESOP trust shares
allocated to employee accounts - - - - - 64 - - -
Foreign currency translation
adjustment, net of income tax
benefit of $116 - - - - - - (215) - -
Issuance of common shares 3,196,076 3 129 - - - - - -
Purchase of treasury shares - - - - - - - (4,610,713) (216)
Issuance of treasury shares:
Dividend Reinvestment Plan - - 19 - - - - 2,730,666 111
Other issuances - - (8) - - - - 2,158,694 87
Other - - - 16 - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 933,861,842 934 9,398 (316) (272) (242) (578) (11,122,981) (481)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income for the year
($1.78 per share*) - - - 3,279 - - - - -
Dividends to shareowners
($0.86 per share*) - - - (1,680) - - - - -
Reduction of debt associated with
Employee Stock Ownership Plans - - - - 43 - - - -
Cost of LESOP trust shares
allocated to employee accounts - - - - - 81 - - -
Foreign currency translation
adjustment, net of income tax
benefit of $28 - - - - - - (59) - -
Purchase of common shares (89,218) - - - - - - - -
Purchase of treasury shares - - - - - - - (13,099,709) (650)
Issuance of treasury shares:
Dividend Reinvestment Plan - - 26 - - - - 2,667,752 109
Other issuances - - (5) - - - - 937,999 37
Other - - 3 14 - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 933,772,624 934 9,422 1,297 (229) (161) (637) (20,616,939) (985)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income for the year
($0.81 per share*) - - - 1,474 - - - - -
Dividends to shareowners
($0.895 per share*) - - - (1,638) - - - - -
Reduction of debt associated with
Employee Stock Ownership Plans - - - - 46 - - - -
Cost of LESOP trust shares
allocated to employee accounts - - - - - 42 - - -
Foreign currency translation
adjustment, net of income tax
expense of $38 - - - - - - 63 - -
Purchase of common shares (261,340) - - - - - - - -
Purchase of treasury shares - - - - - - - (1,547,110) (80)
Issuance of treasury shares - - (38) - - - - 7,293,371 335
Other - - 34 13 - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 933,511,284 $ 934 $ 9,418 $ 1,146 $ (183) $ (119) $ (574) (14,870,678) $(730)
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Restated to reflect two-for-one stock split declared January 30, 1998.
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Dollars in millions except per share amounts
Note 1. Summary of Significant Accounting Policies
Basis of Presentation - The consolidated financial statements include the
accounts of SBC Communications Inc. and its majority-owned subsidiaries
(SBC). SBC's subsidiaries and affiliates operate predominantly in the
communications services industry, providing landline and wireless
telecommunications services and equipment, directory advertising and cable
television services both domestically and worldwide.
SBC's largest subsidiaries are Southwestern Bell Telephone Company
(SWBell) providing telecommunications services in Texas, Missouri,
Oklahoma, Kansas and Arkansas (five-state area), and Pacific Telesis Group
(PAC), providing telecommunications services in California and Nevada.
PAC's subsidiaries include Pacific Bell (PacBell, which also includes its
subsidiaries) and Nevada Bell. (SWBell, PacBell and Nevada Bell are
collectively referred to as the Telephone Companies.)
All significant intercompany transactions are eliminated in the
consolidation process. Investments in partnerships, joint ventures and
less than majority-owned subsidiaries are principally accounted for under
the equity method. Earnings from certain foreign investments accounted for
under the equity method are included for periods ended within three months
of SBC's year end.
Financial information has been restated to reflect the two-for-one stock
split, effected in the form of a stock dividend, declared January 30, 1998
(see Note 15). Certain amounts in prior period financial statements have
been reclassified to conform to the current year's presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Income Taxes - Deferred income taxes are provided for temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes.
Investment tax credits earned prior to their repeal by the Tax Reform Act
of 1986 are amortized as reductions in income tax expense over the lives
of the assets which gave rise to the credits.
Cash Equivalents - Cash equivalents include all highly liquid investments
with original maturities of three months or less.
Deferred Charges - Directory advertising costs are deferred until the
directory is published and advertising revenues related to these costs are
recognized.
Cumulative Effect of Accounting Change - Prior to January 1, 1996, Pacific
Bell Directory (a subsidiary of PacBell) recognized revenues and expenses
related to publishing directories in California using the "amortization"
method, under which revenues and expenses were recognized over the lives
of the directories, generally one year. Effective January 1, 1996, Pacific
Bell Directory changed to the "issue basis" method of accounting, which
recognizes the revenues and expenses at the time the related directory is
published. The change in methodology was made because the issue basis
method is generally followed in the publishing industry, including
Southwestern Bell Yellow Pages, and better reflects the operating activity
of the business.
The cumulative after-tax effect of applying the change in method to prior
years is recognized as of January 1, 1996 as a one-time, non-cash gain
applicable to continuing operations of $90, or $0.05 per share. The gain
is net of deferred taxes of $53. Had the current method been applied
during 1995, income before extraordinary loss and accounting change would
not have been materially affected.
Property, Plant and Equipment - Property, plant and equipment is stated at
cost. The cost of additions and substantial betterments of property, plant
and equipment is capitalized. The cost of maintenance and repairs of
property, plant and equipment is charged to operating expenses. Property,
plant and equipment is depreciated using straight-line methods over their
estimated economic lives, generally ranging from 3 to 50 years. Prior to
the discontinuance of regulatory accounting in the third quarter of 1995,
SWBell and PacBell computed depreciation using certain straight-line
methods and rates as prescribed by regulators. In accordance with
composite group depreciation methodology, when a portion of the Telephone
Companies' depreciable property, plant and equipment is retired in the
ordinary course of business, the gross book value is charged to
accumulated depreciation; no gain or loss is recognized on the disposition
of this plant.
Intangible Assets - Intangible assets consist primarily of wireless
cellular and Personal Communications Services (PCS) licenses, television
licenses, customer lists and the excess of consideration paid over net
assets acquired in business combinations. These assets are being amortized
using the straight-line method, over periods generally ranging from 5 to
40 years. At December 31, 1997 and 1996, amounts included in net
intangible assets for licenses were $2,625 and $2,695. Management
periodically reviews the carrying value and lives of all intangible assets
based on expected future cash flows.
Software Costs - The costs of computer software purchased or developed for
internal use are expensed as incurred. However, initial operating system
software costs are capitalized and amortized over the lives of the
associated hardware.
Advertising Costs - Costs for advertising products and services or
corporate image are expensed as incurred.
Foreign Currency Translation - Local currencies are generally considered
the functional currency for SBC's share of foreign operations, except in
countries considered highly inflationary. SBC translates its share of
foreign assets and liabilities at current exchange rates. Revenues and
expenses are translated using average rates during the year. The ensuing
foreign currency translation adjustments are recorded as a separate
component of Shareowners' Equity. Other transaction gains and losses
resulting from exchange rate changes on transactions denominated in a
currency other than the local currency are included in earnings as
incurred.
Earnings Per Common Share - In 1997, Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (FAS 128) replaced the calculation
of primary and fully diluted earnings per share with basic and diluted
earnings per share. Basic earnings per share excludes any dilutive effects
of options and other stock-based compensation. All earnings per share
amounts for all periods have been presented and, where appropriate,
restated to conform to FAS 128 requirements.
Derivative Financial Instruments - SBC does not invest in any derivatives
for trading purposes. From time to time SBC invests in immaterial amounts
of interest rate swaps in order to manage exposure to interest rate risk
and foreign currency forward exchange contracts in order to manage
exposure to changes in foreign currency rates. Amounts related to
derivative contracts are recorded using the hedge accounting approach. SBC
currently does not recognize the fair values of these derivative financial
investments or their changes in fair value in its financial statements.
PAC has entered into an equity swap contract to hedge exposure to risk
associated with its recorded liability for certain outstanding employee
stock options relating to stock of AirTouch Communications Inc. (see Note
10). The equity swap contract and its liability are recorded at fair value
in the balance sheet as other assets or liabilities.
Note 2. Discontinuance of Regulatory Accounting
In the third quarter of 1995, SWBell and PacBell discontinued their
application of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (FAS 71). FAS
71 requires depreciation of telephone plant using lives set by regulators
which are generally longer than those established by unregulated companies
and the deferral of certain costs and obligations based on regulatory
actions (regulatory assets and liabilities). As a result of the adoption
of price-based regulation for most of SWBell's revenues and the
acceleration of competition in the California and five-state area
telecommunications markets, management determined that SWBell and PacBell
no longer met the criteria for application of FAS 71.
Upon discontinuance of FAS 71 by SWBell and PacBell, SBC recorded a
non-cash, extraordinary charge to net income of $6,022 (after a net
deferred tax benefit of $4,037). This charge was comprised of an after-tax
charge of $5,739 to reduce the net carrying value of telephone plant, and
an after-tax charge of $283 for the elimination of net regulatory assets.
The components of the charge were as follows:
----------------------------------------------------------------------
Pre-tax After-tax
----------------------------------------------------------------------
Increase telephone plant accumulated $ 9,476 $ 5,739
depreciation
Elimination of net regulatory assets 583 283
======================================================================
Total $ 10,059 $ 6,022
======================================================================
The increase in accumulated depreciation of $9,476 reflected the effects
of adopting depreciable lives for SWBell's and PacBell's plant categories
which more closely reflect the economic and technological lives of the
plant. The adjustment was supported by discounted cash flow analyses, that
estimated amounts of telephone plant that may not be recoverable from
discounted future cash flows. These analyses included consideration of the
effects of anticipated competition and technological changes on plant
lives and revenues.
Following is a comparison of new lives to those prescribed by regulators
for selected plant categories:
------------------------------------------------------------------------
Average Lives (in Years)
------------------------------------------------------------------------
Regulator- Estimated
Prescribed Economic
------------------------------------------------------------------------
Digital switch 17 10-11
Digital circuit 10-12 7-8
Copper cable 19-26 14-18
Fiber cable 27-30 20
Conduit 57-59 50
========================================================================
The increase in accumulated depreciation at SWBell also included an
adjustment of approximately $450 to fully depreciate analog switching
equipment scheduled for replacement. Remaining analog switching equipment
is being depreciated using an average remaining life of four years.
The discontinuance of FAS 71 for external financial reporting purposes
also required the elimination of net regulatory assets of $583. Regulatory
assets and liabilities are related primarily to accounting policies used
by regulators in the ratemaking process which are different from those
used by non-regulated companies. The differences arose predominantly in
the accounting for income taxes, deferred compensated absences, and in
California, pension costs and debt redemption costs. These items were
required to be eliminated with the discontinuance of accounting under FAS
71. SWBell and PacBell accounting and reporting for regulatory purposes
are not affected by the discontinuance of FAS 71 for external financial
reporting purposes.
With the discontinuance of FAS 71, SWBell and PacBell began accounting for
interest on funds borrowed to finance construction as an increase in
property, plant and equipment and a reduction of interest expense. Under
the provisions of FAS 71, both companies capitalized both interest and
equity costs allowed by regulators during periods of construction as other
income and as an addition to the cost of plant constructed. Additionally,
PacBell began accounting for pension costs under Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions," (FAS
87) and Statement of Financial Accounting Standards No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits" (FAS 88).
Note 3. Merger with PAC
On April 1, 1997, SBC and PAC completed the merger of an SBC subsidiary
with PAC, in a transaction in which each share of PAC common stock was
exchanged for 1.4629 shares of SBC common stock (equivalent to
approximately 626 million shares; both the exchange ratio and shares
issued have been restated to reflect the two-for-one stock split declared
January 30, 1998). With the merger, PAC became a wholly-owned subsidiary
of SBC. The transaction has been accounted for as a pooling of interests
and a tax-free reorganization. Accordingly, the financial statements for
the periods presented prior to the merger have been restated to include
the accounts of PAC.
Operating revenues, income before extraordinary loss and cumulative effect
of accounting change and net income (loss) of the separate companies for
the pre-merger periods of the last three years were as follows:
-----------------------------------------------------------------------
Three
months
ended
March 31, Year Ended December 31,
-----------------------------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------------
Operating revenues:
SBC $ 3,456 $ 13,857 $ 12,670
PAC 2,535 9,588 9,042
-----------------------------------------------------------------------
Combined $ 5,991 $ 23,445 $ 21,712
-----------------------------------------------------------------------
Income before extraordinary loss and
cumulative effect of accounting
change:
SBC $ 517 $ 2,101 $ 1,889
PAC 352 1,057 1,048
Adjustments (12) 31 21
-----------------------------------------------------------------------
Combined $ 857 $ 3,189 $ 2,958
-----------------------------------------------------------------------
Net income (loss):
SBC $ 517 $ 2,101 $ (930)
PAC 352 1,142 (2,312)
Adjustments (12) 36 178
-----------------------------------------------------------------------
Combined $ 857 $ 3,279 $ (3,064)
-----------------------------------------------------------------------
The combined results include the effect of changes applied retroactively
to conform accounting methodologies between PAC and SBC for, among other
items, pensions, postretirement benefits, sales commissions and merger
transaction costs as well as certain deferred tax adjustments resulting
from the merger. In each case, SBC believes the new methods are more
prevalent and better reflect the operations of the business. Transaction
costs and one-time charges relating to the closing of the merger were $359
($215 net of tax) including, among other items, the present value of
amounts to be returned to California ratepayers as a condition of the
merger and expenses for investment banker and professional fees. Of this
total, $287 ($180 net of tax) is included in expenses in 1997, and $72
($35 net of tax) in 1996.
Post-merger initiatives
During the second quarter of 1997, SBC announced after-tax charges of $1.6
billion related to several strategic decisions resulting from the merger
integration process that began with the April 1 closing of its merger with
PAC, which included $165 ($101 after tax) of charges related to several
regulatory rulings during the second quarter of 1997 and $281 ($176 after
tax) for merger approval costs. The decisions resulted from an extensive
review of operations throughout the merged company and include significant
integration of operations and consolidation of some administrative and
support functions. Following is a discussion of the most significant of
these charges.
Reorganization SBC is centralizing several key functions that will support
the operations of the Telephone Companies, including network planning,
strategic marketing and procurement. It is also consolidating a number of
corporate-wide support activities, including research and development,
information technology, financial transaction processing and real estate
management. The Telephone Companies will continue as separate legal
entities. These initiatives will result in the creation of some jobs and
the elimination and realignment of others, with many of the affected
employees changing job responsibilities and in some cases assuming
positions in other locations.
SBC recognized a charge of approximately $338 ($213 net of tax) during the
second quarter of 1997 in connection with these initiatives. This charge
was comprised mainly of postemployment benefits, primarily related to
severance, and costs associated with closing down duplicate operations,
primarily contract cancellations. Other charges arising out of the merger
related to relocation, retraining and other effects of consolidating
certain operations are being recognized in the periods those charges are
incurred. During the second half of 1997, SBC incurred $501 ($304 net of
tax) of merger-related charges.
Impairments/asset valuation As a result of SBC's merger integration plans,
strategic review of domestic operations and organizational realignments,
SBC reviewed the carrying values of related long-lived assets. This review
included estimating remaining useful lives and cash flows and identifying
assets to be abandoned. Where this review indicated impairment, discounted
cash flows related to those assets were analyzed to determine the amount
of the impairment. As a result of these reviews, SBC wrote off some assets
and recognized impairments to the value of other assets with a combined
charge of $965 ($667 after tax) recorded in the second quarter of 1997.
These impairments and writeoffs related to the wireless digital TV
operations in southern California, certain analog switching equipment in
California, certain rural and other telecommunications equipment in
Nevada, selected wireless equipment, duplicate or obsolete equipment,
cable within commercial buildings in California, certain nonoperating
plant and other assets.
Video curtailment/purchase commitments SBC also announced that it is
scaling back its limited direct investment in video services. As a result
of this curtailment, SBC has halted construction on the Advanced
Communications Network (ACN) in California. As part of an agreement with
the ACN vendor, SBC paid the liabilities of the ACN trust that owned and
financed ACN construction, incurred costs to shut down all construction
previously conducted under the trust and received certain consideration
from the vendor. In the second quarter of 1997, SBC recognized its net
expense of $553 ($346 after tax) associated with these activities.
Additionally, SBC curtailed several other video-related activities
including discontinuing its broadband network video trials in Richardson,
Texas and San Jose, California, substantially scaling back its involvement
in the Tele-TV joint venture and withdrawing from the Americast venture.
Americast partners are disputing the withdrawal in arbitration and
litigation, the outcome of which cannot be predicted. The collective
impact of these decisions resulted in a charge of $145 ($92 after tax) in
the second quarter of 1997.
Note 4. Merger Agreement with Southern New England Telecommunications
Corporation (SNET)
On January 5, 1998, SBC and SNET jointly announced a definitive agreement
to merge an SBC subsidiary with SNET, in a transaction in which each share
of SNET common stock will be exchanged for 1.7568 shares of SBC common
stock (equivalent to approximately 120 million shares, or 6.5% of SBC's
outstanding shares at December 31, 1997; both the exchange ratio and
shares to be issued have been restated to reflect the two-for-one stock
split declared January 30, 1998). After the merger, SNET will be a
wholly-owned subsidiary of SBC. The transaction is intended to be
accounted for as a pooling of interests and to be a tax-free
reorganization. The merger is subject to certain regulatory approvals as
well as approval by the shareowners of SNET at a special meeting expected
to be held on March 27, 1998. If approvals are granted, the transaction is
expected to close by the end of 1998.
Note 5. Pacific Telesis Group Financial Information
The following table presents summarized financial information for Pacific
Telesis Group at December 31, or for the year then ended:
<TABLE>
--------------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------------------------
<S> <C> <C> <C>
Balance Sheets
Current assets $ 2,835 $ 2,474 $ 2,434
Noncurrent assets 14,041 14,134 13,407
Current liabilities 4,513 3,527 4,641
Noncurrent liabilities 10,305 10,308 9,010
--------------------------------------------------------------------------
Income Statements
Operating revenues $ 10,101 $ 9,588 $ 9,042
Operating income (loss) (166) 2,198 2,011
Income (loss) before extraordinary loss
and cumulative effect of accounting changes (546) 1,057 1,048
Net income (loss) (224) 1,142 (2,312)
--------------------------------------------------------------------------
</TABLE>
SBC has not provided separate financial statements and other disclosures
for PAC as management has determined that such information is not material
to the holders of the Trust Originated Preferred Securities (TOPrS) (see
Note 10). On January 30, 1998, SBC guaranteed payment of the obligations
of the TOPrS.
<PAGE>
Note 6. Earnings Per Share
A reconciliation of the numerators and denominators of basic earnings per
share and diluted earnings per share for income before extraordinary loss
and cumulative effect of accounting change for the years ended December
31, 1997, 1996 and 1995 are shown in the table below. Per share amounts
have been restated to reflect the two-for-one stock split declared January
30, 1998.
--------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995
--------------------------------------------------------------------
Numerators
Numerator for basic earnings per share:
Income before extraordinary loss
and cumulative effect of accounting
change $ 1,474 $ 3,189 $ 2,958
--------------------------------------------------------------------
Dilutive potential common shares:
Other stock-based compensation 3 2 2
--------------------------------------------------------------------
Numerator for diluted earnings
per share $ 1,477 $ 3,191 $ 2,960
--------------------------------------------------------------------
Denominators
Denominator for basic earnings per share:
Weighted average number of common
shares outstanding (000) 1,828,395 1,841,240 1,840,861
--------------------------------------------------------------------
Dilutive potential common shares (000):
Stock options 11,791 6,783 4,910
Other stock-based compensation 4,443 3,410 2,936
--------------------------------------------------------------------
Denominator for diluted
earnings per share 1,844,629 1,851,433 1,848,707
--------------------------------------------------------------------
Basic earnings per share:
Income before extraordinary loss
and cumulative effect of accounting
change $ 0.81 $ 1.73 $ 1.61
Extraordinary loss - - (3.27)
Cumulative effect of accounting
change - 0.05 -
--------------------------------------------------------------------
Net income (loss) $ 0.81 $ 1.78 $ (1.66)
--------------------------------------------------------------------
Diluted earnings per share:
Income before extraordinary loss
and cumulative effect of accounting
change $ 0.80 $ 1.72 $ 1.60
Extraordinary loss - - (3.26)
Cumulative effect of accounting
change - 0.05 -
--------------------------------------------------------------------
Net income (loss) $ 0.80 $ 1.77 $ (1.66)
--------------------------------------------------------------------
<PAGE>
Note 7. Property, Plant and Equipment
Property, plant and equipment is summarized as follows at December 31:
---------------------------------------------------------------------
1997 1996
---------------------------------------------------------------------
Telephone Companies plant
In service $ 60,122 $ 56,638
Under construction 1,147 1,614
---------------------------------------------------------------------
61,269 58,252
Accumulated depreciation and
amortization (36,384) (34,515)
---------------------------------------------------------------------
Total Telephone Companies 24,885 23,737
---------------------------------------------------------------------
Other 4,017 3,534
Accumulated depreciation and
amortization (1,563) (1,191)
---------------------------------------------------------------------
Total other 2,454 2,343
---------------------------------------------------------------------
Property, plant and equipment-net $ 27,339 $ 26,080
=====================================================================
SBC's depreciation expense as a percentage of average depreciable plant
was 7.4% for 1997, 6.9% for 1996 and 7.0% for 1995.
Certain facilities and equipment used in operations are under operating or
capital leases. Rental expenses under operating leases for 1997, 1996 and
1995 were $390, $324 and $231. At December 31, 1997, the future minimum
rental payments under noncancelable operating leases for the years 1998
through 2002 were $168, $171, $113, $86 and $66, and $238 thereafter.
Capital leases were not significant.
Note 8. Equity Investments
Investments in affiliates accounted for under the equity method include
SBC's investment in Telefonos de Mexico, S.A. de C.V. (Telmex), Mexico's
national telecommunications company. SBC is a member of a consortium that
holds all of the AA shares of Telmex stock, representing voting control of
the company. The consortium is controlled by a group of Mexican investors
led by an affiliate of Grupo Carso, S.A. de C.V. SBC also owns L shares
which have limited voting rights. Throughout 1997 and in February 1998,
SBC sold portions of its L shares so that its total equity investment
remained below 10% of Telmex's total equity capitalization.
Other major equity investments held by SBC include a 1997 investment of
$760 in South African telecommunications (see Note 16), an indirect 15%
ownership in Cegetel, a joint venture providing a broad range of
telecommunications offerings in France, investments in Chilean
telecommunications operations and minority ownership of several domestic
wireless properties.
The following table is a reconciliation of SBC's investments in equity
affiliates:
---------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------
Beginning of year $ 1,964 $ 1,616 $ 1,776
Additional investments 1,076 337 447
Equity in net income 201 207 120
Dividends received (90) (70) (62)
Currency translation adjustments (135) (94) (268)
Reclassifications and other
adjustments (276) (32) (397)
=====================================================================
End of year $ 2,740 $ 1,964 $ 1,616
=====================================================================
Currency translation adjustments for 1997 primarily reflect the effect of
the exchange rate fluctuations on SBC's investments in South African and
French telecommunications.
The currency translation adjustment for 1995 primarily reflects the effect
on SBC's investment in Telmex of the decline in the value of the Mexican
peso relative to the U.S. dollar during 1995. In 1997, SBC used the U.S.
dollar, instead of the peso, as the functional currency for its investment
in Telmex due to the Mexican economy becoming highly inflationary.
Other adjustments for 1997 reflect the sale of portions of SBC's Telmex L
shares and the change to the cost method of accounting in 1997 for SBC's
1995 investment in South African wireless operations. Other adjustments
for 1995 reflect the change in October 1995 to the cost method of
accounting for SBC's United Kingdom cable television operations (see Note
16).
Undistributed earnings from equity affiliates were $862 and $762 at
December 31, 1997 and 1996.
<PAGE>
Note 9. Debt
<TABLE>
Long-term debt, including interest rates and maturities, is summarized as
follows at December 31:
------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------
<S> <C> <C>
SWBell
Debentures
4.50%-5.88% 1997-2006 $ 500 $ 600
6.13%-6.88% 2000-2024 1,550 1,200
7.00%-7.75% 2009-2027 1,750 1,500
------------------------------------------------------------------------------
3,800 3,300
Unamortized discount--net of premium (36) (29)
------------------------------------------------------------------------------
Total debentures 3,764 3,271
------------------------------------------------------------------------------
Notes
5.04%-7.67% 1997-2010 1,236 1,118
Unamortized discount (6) (6)
------------------------------------------------------------------------------
Total notes 1,230 1,112
------------------------------------------------------------------------------
PacBell
Debentures
4.62%-5.88% 1999-2006 475 475
6.00%-6.88% 2002-2034 1,194 1,194
7.12%-7.75% 2008-2043 2,250 2,150
8.50% 2031 225 225
------------------------------------------------------------------------------
4,144 4,044
Unamortized discount--net of premium (89) (89)
------------------------------------------------------------------------------
Total debentures 4,055 3,955
------------------------------------------------------------------------------
Notes
6.25%-8.70% 2001-2009 1,300 1,150
Unamortized discount (18) (18)
------------------------------------------------------------------------------
Total notes 1,282 1,132
------------------------------------------------------------------------------
Other notes
5.76%-6.98% 1997-2007 188 310
7.00%-9.50% 1997-2020 1,318 1,140
------------------------------------------------------------------------------
1,506 1,450
Unamortized premium (discount) 71 (14)
------------------------------------------------------------------------------
Total other notes 1,577 1,436
------------------------------------------------------------------------------
Guaranteed obligations of employee stock
ownership plans (1)
8.41%-9.40% 1997-2000 153 208
------------------------------------------------------------------------------
Capitalized leases 294 303
------------------------------------------------------------------------------
Total long-term debt, including current maturities 12,355 11,417
Current maturities (336) (487)
==============================================================================
Total long-term debt $ 12,019 $ 10,930
==============================================================================
<FN>
(1) See Note 13.
</FN>
</TABLE>
In February 1998, SBC called $630 of debentures and notes of SWBell,
PacBell and SBC Communications Capital Corporation (included in Other
notes). Estimated net income impact from unamortized discounts and call
premiums is $(8). During 1995, SBC refinanced long-term debentures of
SWBell and PacBell. Costs of $36 associated with refinancing are included
in other income (expense) - net, with related income tax benefits of $14
included in income taxes in SBC's Consolidated Statements of Income.
At December 31, 1997, the aggregate principal amounts of long-term debt
scheduled for repayment for the years 1998 through 2002 were $336, $500,
$469, $986 and $879. As of December 31, 1997, SBC was in compliance with
all covenants and conditions of instruments governing its debt.
Debt maturing within one year consists of the following at December 31:
----------------------------------------------------------------------
1997 1996
----------------------------------------------------------------------
Commercial paper $ 1,268 $ 1,848
Current maturities of long-term debt 336 487
Other short-term debt 349 -
======================================================================
Total $ 1,953 $ 2,335
======================================================================
The weighted average interest rate on commercial paper debt at December
31, 1997 and 1996 was 6.0%. SBC has entered into agreements with several
banks for lines of credit totaling $1,000. All of these agreements may be
used to support commercial paper borrowings and are on a negotiated fee
basis with interest rates negotiable at time of borrowing. There were no
borrowings outstanding under these lines of credit at December 31, 1997.
Another group of uncommitted lines of credit with banks that do not
require compensating balances or commitment fees, and accordingly are
subject to continued review, amounted to approximately $1,475 at December
31, 1997.
Note 10. Financial Instruments
The carrying amounts and estimated fair values of SBC's long-term debt,
including current maturities and other financial instruments, are
summarized as follows at December 31:
-----------------------------------------------------------------------
1997 1996
-----------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------------------
SWBell debentures $3,764 $3,828 $3,271 $3,208
SWBell notes 1,230 1,271 1,112 1,115
PacBell debentures 4,055 4,337 3,955 3,917
PacBell notes 1,282 1,342 1,132 1,171
Other notes 1,577 1,768 1,436 1,478
TOPrS 1,000 1,034 1,000 990
Guaranteed obligations of
employee stock ownership
plans(1) 153 159 208 219
----------------------------------------------------------------------
(1) See Note 13.
The fair values of SBC's long-term debt were estimated based on quoted
market prices, where available, or on the net present value method of
expected future cash flows using current interest rates. The fair value of
the TOPrS was estimated based on quoted market prices. The carrying
amounts of commercial paper debt approximate fair values.
SBC does not hold or issue any financial instruments for trading purposes.
SBC's cash equivalents and short-term investments are recorded at
amortized cost. The carrying amounts of cash and cash equivalents and
short-term investments and customer deposits approximate fair values.
Pacific Telesis Financing I and II (the Trusts) were formed for the
exclusive purpose of issuing preferred and common securities representing
undivided beneficial interests in the Trusts and investing the proceeds
from the sales of TOPrS in unsecured subordinated debt securities of PAC.
Under certain circumstances, dividends on TOPrS could be deferred for up
to a period of five years. PAC sold $1 billion of TOPrS, $500 at 7.56% in
January 1996 through Pacific Telesis Financing I and $500 at 8.5% in June
1996 through Pacific Telesis Financing II. As of December 31, 1997, the
Trusts held subordinated debt securities of PAC in principal amounts of
$516 and $514 with interest rates of 7.56% and 8.5%. Both issues of TOPrS
were priced at $25 per share, have an original 30-year maturity that may
be extended up to 49 years, and are callable five years after date of sale
at par and are included on the balance sheet as corporation-obligated
mandatorily redeemable preferred securities of subsidiary trusts. The
proceeds were used to retire short-term indebtedness, primarily commercial
paper. On January 30, 1998, SBC guaranteed payment of the obligations of
the TOPrS.
Derivatives
PAC has entered into an equity swap contract to hedge exposure to risk of
market changes related to its recorded liability for outstanding employee
stock options for common stock of AirTouch Communications, Inc. (spun-off
operations) and associated stock appreciation rights (SARs)(see Note 14).
PAC plans to make open market purchases of the stock of spun-off
operations to satisfy its obligation for options that are exercised.
Off-balance-sheet risk exists to the extent the market price of the stock
of spun-off operations rises above the market price reflected in the
liability's current carrying value. The equity swap was entered into to
hedge this exposure and minimize the impact of market fluctuations. The
contract entitles PAC to receive settlement payments to the extent the
price of the common stock of spun-off operations rises above the notional
value of $23.74 per share, but imposes an obligation to make payments to
the extent the price declines below this level. The swap also obligates
PAC to make a monthly payment of a fee based on LIBOR. The total notional
amount of the contract, $32 and $60 as of December 31, 1997 and 1996
covers the approximate number of the outstanding options and SARs of
spun-off operations on that date. PAC plans to periodically adjust
downward the outstanding notional amount as the options and SARs are
exercised. The equity swap contract expires April 1999.
Both the equity swap and PAC's liability for the stock options and SARs of
spun-off operations are carried in the balance sheet at their market
values, which were immaterial as of December 31, 1997 and 1996. Gains and
losses from quarterly market adjustments of the carrying amounts
substantially offset. As of December 31, 1997 and 1996, the accounting
loss that would be incurred from nonperformance by the counterparty to the
equity swap was $14 and $4. However, management does not expect to realize
any loss from counterparty nonperformance.
Note 11. Income Taxes
Significant components of SBC's deferred tax liabilities and assets are as
follows at December 31:
------------------------------------------------------------------
1997 1996
------------------------------------------------------------------
Depreciation and amortization $ 3,648 $ 3,283
Other 2,255 1,017
------------------------------------------------------------------
Deferred tax liabilities 5,903 4,300
------------------------------------------------------------------
Employee benefits 2,391 2,221
Unamortized investment tax credits 169 195
Other 2,394 1,328
------------------------------------------------------------------
Deferred tax assets 4,954 3,744
------------------------------------------------------------------
Deferred tax assets valuation allowance 68 96
------------------------------------------------------------------
Net deferred tax liabilities $ 1,017 $ 652
==================================================================
The decrease in the valuation allowance is the result of an evaluation of
the uncertainty associated with the realization of certain deferred tax
assets. The valuation allowance is maintained in deferred tax assets for
certain unused federal and state loss carryforwards.
The components of income tax expense are as follows:
<TABLE>
----------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal
Current $ 705 $ 1,242 $ 829
Deferred--net 57 468 520
Amortization of investment tax credits (81) (80) (95)
----------------------------------------------------------------------------
681 1,630 1,254
----------------------------------------------------------------------------
State and local
Current 24 172 176
Deferred--net 158 158 89
----------------------------------------------------------------------------
182 330 265
----------------------------------------------------------------------------
Total $ 863 $ 1,960 $ 1,519
============================================================================
</TABLE>
A reconciliation of income tax expense and the amount computed by applying
the statutory federal income tax rate (35%) to income before income taxes,
extraordinary loss and cumulative effect of accounting change is as
follows:
<TABLE>
----------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes computed at federal statutory rate $ 818 $ 1,802 $ 1,567
Increases (decreases) in income taxes resulting
from:
Amortization of investment tax credits over
the life of the plant that gave rise to the
credits (53) (53) (92)
State and local income taxes--net of federal
income tax benefit 118 215 172
Other--net (20) (4) (128)
----------------------------------------------------------------------------------
Total $ 863 $ 1,960 $ 1,519
==================================================================================
</TABLE>
Note 12. Employee Benefits
Pensions - Substantially all employees of SBC are covered by one of three
noncontributory pension and death benefit plans. The pension benefit
formula used in the determination of pension cost for nonmanagement
employees is based on a flat dollar amount per year of service according
to job classification. For PAC managers, benefits accrue in separate
account balances based on a fixed percentage of each employee's monthly
salary with interest. For all other managers, benefits accrue in separate
account balances based on a fixed percentage of each employee's monthly
salary plus interest or are determined based upon a stated percentage of
adjusted career income.
SBC's objective in funding the plans, in combination with the standards of
the Employee Retirement Income Security Act of 1974 (as amended), is to
accumulate funds sufficient to meet its benefit obligations to employees
upon their retirement. Contributions to the plans are made to a trust for
the benefit of plan participants. Plan assets consist primarily of stocks,
U.S. government and domestic corporate bonds, index funds and real estate.
<PAGE>
Net pension cost is composed of the following:
-----------------------------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------------
Service cost--benefits earned during
the period $ 278 $ 297 $ 311
Interest cost on projected benefit
obligation 1,146 1,131 1,161
Actual return on plan assets (3,775) (2,919) (4,232)
Other--net 2,161 1,270 2,813
-----------------------------------------------------------------------
Net pension cost (benefit) $ (190) $ (221) $ 53
-----------------------------------------------------------------------
The following table sets forth the pension plans' funded status and the
amounts included in SBC's Consolidated Balance Sheets at December 31:
--------------------------------------------------------------------
1997 1996
--------------------------------------------------------------------
Fair value of plan assets $23,092 $ 20,738
Less: Actuarial present value of projected
benefit obligation 16,746 15,006
--------------------------------------------------------------------
Plan assets in excess of projected benefit
obligation 6,346 5,732
Unrecognized prior service cost 1,108 845
Unrecognized net gain (6,564) (6,072)
Unamortized transition asset (811) (973)
--------------------------------------------------------------------
Prepaid (accrued) pension cost $ 79 $ (468)
====================================================================
The projected benefit obligation was increased $202 at December 31, 1996,
for the cost of force reductions anticipated to take place in 1996 and
1997 and recognized in SBC's financial statements under FAS 88.
Significant weighted average assumptions used in developing pension
information include:
--------------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------------------------
Discount rate for determining projected
benefit obligation 7.25% 7.5% 7.25%
Long-term rate of return on plan assets 8.5% 8.55% 8.0%
Composite rate of compensation increase 4.3% 4.3% 4.3%
--------------------------------------------------------------------------
The projected benefit obligation is the actuarial present value of all
benefits attributed by the pension benefit formula to previously rendered
employee service. It is measured based on assumptions concerning future
interest rates and employee compensation levels. Should actual experience
differ from the actuarial assumptions, the benefit obligation will be
affected.
In April 1997 management amended the pension plan for non-PAC managers to
a cash balance pension plan effective June 1, 1997. Under the new plan,
participants accrue benefits based on a percentage of pay plus interest.
In addition, a transition benefit is phased in over five years. The new
plan also requires computation of a grandfathered benefit using the old
formula for five years. Participants receive the greater of the cash
balance benefit or the grandfathered benefit. The new cash balance plan
allows lump sum benefit payments in addition to annuities. This change did
not have a significant impact on SBC's net income for 1997.
In March 1996, management amended the pension plan for PAC managers from a
final pay plan to a cash balance plan effective July 1, 1996. An enhanced
transition benefit, based on frozen pay and service as of June 30, 1996,
was established to preserve benefits already accrued by salaried employees
under the final pay plan and resulted in an increase in earned benefits
for most employees. SBC also updated the actuarial assumptions used in
valuing the PAC plans to reflect changes in market interest rates and
recent experience, including a change in its assumption concerning future
ad hoc increases in pension benefits. Taken together, these changes
increased net income by approximately $125 during 1996.
The actuarial estimate of the accumulated benefit obligation does not
include assumptions about future compensation levels. The accumulated
benefit obligation as of December 31, 1997 was $15,565, of which $14,404
was vested. At December 31, 1996 these amounts were $13,965 and $12,376.
Approximately 4,200 and 2,200 employees left PacBell during 1996 and 1995
under retirement or voluntary and involuntary severance programs and
received special pension benefits and cash incentives in connection with
the PacBell restructuring and related force reduction programs. Annual
pension cost excludes $(64) and $219 of additional pension costs charged
to PacBell's restructuring reserve in 1996 and 1995.
During 1997, the significant amount of lump sum pension payments resulted
in a partial settlement of PAC's pension plans. In accordance with FAS 88,
net settlement gains in the amount of $299 were recognized in 1997. Of
this amount, $152 was recognized in the first quarter of 1997 and related
primarily to managers who terminated employment in 1996. These gains are
not included in the net pension cost shown in the preceding table.
In December 1996, under the provisions of Section 420 of the Internal
Revenue Code, SBC transferred $73 in pension assets to a health care
benefit account for the reimbursement of retiree health care benefits paid
by SBC. No additional pension assets were transferred to the health care
benefit account in 1997.
Supplemental Retirement Plans - SBC also provides senior and middle
management employees with nonqualified, unfunded supplemental retirement
and savings plans. These plans include supplemental defined pension
benefits as well as compensation deferral plans, some of which include a
corresponding match by SBC based on a percentage of the compensation
deferral. Expenses related to these plans were $89, $88 and $91 in 1997,
1996 and 1995. Liabilities of $892 and $758 related to these plans have
been included in other noncurrent liabilities in SBC's Consolidated
Balance Sheets at December 31, 1997 and 1996.
Postretirement Benefits - SBC provides certain medical, dental and life
insurance benefits to substantially all retired employees under various
plans and accrues actuarially determined postretirement benefit costs as
active employees earn these benefits. Employees retiring after certain
dates will pay a share of the costs of medical coverage that exceed a
defined dollar medical cap. Such future cost sharing provisions have been
reflected in determining SBC's postretirement benefit costs.
Postretirement benefit cost is composed of the following:
---------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------
Service cost--benefits earned
during the period $ 102 $ 101 $ 99
Interest cost on accumulated
postretirement benefit
obligation (APBO) 480 475 496
Actual return on assets (619) (375) (452)
Other--net 398 208 318
=====================================================================
Postretirement benefit cost $ 361 $ 409 $ 461
=====================================================================
SBC maintains Voluntary Employee Beneficiary Association (VEBA) trusts to
fund postretirement benefits. During 1997 and 1996, SBC contributed $415
and $320 into the VEBA trusts to be ultimately used for the payment of
postretirement benefits. Assets consist principally of stocks and U.S.
government and corporate bonds.
<PAGE>
The following table sets forth the plans' funded status and the amount
included in SBC's Consolidated Balance Sheets at December 31:
-----------------------------------------------------------------------
1997 1996
-----------------------------------------------------------------------
Retirees $ 4,470 $ 4,047
Fully eligible active plan participants 773 706
Other active plan participants 1,932 1,819
-----------------------------------------------------------------------
Total APBO 7,175 6,572
Less: Fair value of plan assets 3,533 2,697
-----------------------------------------------------------------------
APBO in excess of plan assets 3,642 3,875
Unrecognized prior service cost 24 (31)
Unrecognized net gain 1,105 1,119
-----------------------------------------------------------------------
Accrued postretirement benefit obligation $ 4,771 $ 4,963
=======================================================================
In December 1995, one of the life insurance benefit plans was merged with
one of the medical plans. The fair value of plan assets restricted to the
payment of life insurance benefits only was $887 and $746 at December 31,
1997 and 1996. At December 31, 1997 and 1996, the accrued life insurance
benefits included in the accrued postretirement benefit obligation were
$74 and $57.
The assumed medical cost trend rate in 1998 is 7.5%, decreasing gradually
to 5.5% in 2002, prior to adjustment for cost-sharing provisions of the
plan for active and certain recently retired employees. The assumed dental
cost trend rate in 1998 is 6%, reducing to 5% in 2002. Raising the annual
medical and dental cost trend rates by one percentage point increases the
APBO as of December 31, 1997 by $458 and increases the aggregate service
and interest cost components of the net periodic postretirement benefit
cost for 1997 by approximately $45. Significant assumptions for the
discount rate, long-term rate of return on plan assets and composite rate
of compensation increase used in developing the APBO and related
postretirement benefit costs were the same as those used in developing the
pension information.
Note 13. Other Employee Benefits
Employee Stock Ownership Plans - SBC maintains contributory savings plans
which cover substantially all employees. Under the savings plans, SBC
matches a stated percentage of eligible employee contributions, subject to
a specified ceiling.
SBC has three leveraged Employee Stock Ownership Plans (ESOPs) as part of
the existing savings plans. Two of the ESOPs were funded with notes issued
by the savings plans to various lenders, the proceeds of which were used
to purchase shares of SBC's common stock in the open market. These notes
are unconditionally guaranteed by SBC and therefore presented as a
reduction to shareowners' equity and an increase in long-term debt. They
will be repaid with SBC contributions to the savings plans, dividends paid
on SBC shares and interest earned on funds held by the ESOPs.
The third ESOP purchased PAC treasury shares in exchange for a promissory
note from the plan to PAC. Since PAC is the lender, this note is not
reflected as a liability and the remaining cost of unallocated trust
shares is carried as a reduction of shareowners' equity. Principal and
interest on the note are paid from employer contributions and dividends
received by the trust. All PAC shares were exchanged for SBC shares
effective with the merger April 1, 1997. The provisions of this ESOP were
unaffected by this exchange.
SBC's match of employee contributions to the savings plans is fulfilled
with shares of stock allocated from the ESOPs and with purchases of SBC's
stock in the open market. Shares held by the ESOPs are released for
allocation to the accounts of employees as employer matching contributions
are earned. Benefit cost is based on a combination of the contributions to
the savings plans and the cost of shares allocated to participating
employees' accounts. Both benefit cost and interest expense on the notes
are reduced by dividends on SBC's shares held by the ESOPs and interest
earned on the ESOPs' funds.
Information related to the ESOPs and the savings plans is summarized
below:
------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------
Benefit expense--net of dividends and
interest income $ 46 $ 65 $ 66
Interest expense--net of dividends and
interest income 18 26 37
------------------------------------------------------------------------
Total expense $ 64 $ 91 $ 103
========================================================================
Company contributions for ESOPs $ 98 $ 108 $ 89
========================================================================
Dividends and interest income for debt
service $ 58 $ 62 $ 72
========================================================================
SBC shares held by the ESOPs are summarized as follows at December 31:
-----------------------------------------------------------------------
1997 1996
-----------------------------------------------------------------------
Unallocated 15,621,250 31,005,792
Committed to be allocated 282,388 355,188
Allocated to participants 43,151,816 31,119,148
=======================================================================
Total 59,055,454 62,480,128
=======================================================================
Note 14. Stock-Based Compensation
Under various SBC plans, senior and other management employees and
non-employee directors have received stock options, SARs, performance
shares and nonvested stock units to purchase shares of SBC common stock.
Options issued through December 31, 1997 carry exercise prices equal to
the market price of the stock at the date of grant and have maximum terms
ranging from five to ten years. Depending upon the grant, vesting of
options may occur up to four years from the date of grant. Performance
shares are granted to key employees in the form of common stock and/or in
cash based upon the price of common stock at date of grant and are awarded
at the end of a two or three year period, subject to the achievement of
certain performance goals. Nonvested stock units are also valued at market
price of the stock at date of grant and vest over a three year period. Up
to 156 million shares may be issued under these plans.
In 1996 SBC elected to continue measuring compensation cost for these
plans using the intrinsic value based method of accounting prescribed in
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123). Accordingly, no compensation cost for
SBC's stock option plans has been recognized. The compensation cost that
has been charged against income for SBC's other stock-based compensation
plans, primarily SARs and nonvested stock units, totaled $43, $22 and $24
for 1997, 1996 and 1995. Had compensation cost for stock option plans been
recognized using the fair value based method of accounting at the date of
grant for awards in 1997, 1996 and 1995 as defined by FAS 123, SBC's net
income (loss) would have been $1,400, $3,250 and $(3,074) and basic net
income (loss) per share would have been $0.77, $1.77 and $(1.67).
Options and SARs held by the continuing employees of PAC at the time of
the AirTouch Communications Inc. spin-off were supplemented with an equal
number of options and SARs for common shares of spun-off operations. The
exercise prices for outstanding options and SARs held by continuing
employees of PAC were adjusted downward to reflect the value of the
supplemental spun-off operations' options and SARs. The balance sheet
reflects a related liability equal to the difference between the current
market price of spun-off operations stock and the exercise prices of the
supplemental options outstanding (see Note 10). As of December 31, 1997,
831,139 supplemental spun-off operations options and SARs were outstanding
with expiration dates ranging from 1998 to 2003. Outstanding options and
SARs that were held by employees of the wireless operations at the
spin-off date were replaced by options and SARs for common shares of
spun-off operations. The spun-off operations assumed liability for these
replacement options and SARs.
For purposes of these pro forma disclosures, the estimated fair value of
the options granted after 1994 is amortized to expense over the options'
vesting period. Because most employee options vest over a two to three
year period, these disclosures will not be indicative of future pro forma
amounts until the FAS 123 rules are applied to all outstanding non-vested
awards. The fair value for these options was estimated at the date of
grant, using a Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1997, 1996 and 1995:
risk-free interest rate of 6.57%, 6.26% and 6.34%; dividend yield of
2.99%, 4.92% and 3.61%; expected volatility factor of 15%, 18% and 18%;
and expected option life of 5.8, 4.7 and 4.6 years.
Information related to options and SARs is summarized below and has been
restated to reflect the two-for-one stock split declared January 30,
1998:
<TABLE>
------------------------------------------------------------------------------
Weighted
Average
Number Exercise
Price
------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1995 43,988,164 $19.52
Granted 16,735,644 23.49
Exercised (4,373,340) 16.90
Forfeited/Expired (1,509,368) 21.36
------------------------------------------------------------------------------
Outstanding at December 31, 1995
(25,524,518 exercisable at weighted average
price of $19.05) 54,841,100 20.89
Granted 24,643,276 22.98
Exercised (3,767,420) 18.73
Forfeited/Expired (1,518,552) 21.56
------------------------------------------------------------------------------
Outstanding at December 31, 1996
(35,522,826 exercisable at weighted average
price of $20.13) 74,198,404 21.68
Granted 32,034,238 27.58
Exercised (17,118,968) 20.52
Forfeited/Expired (4,441,532) 25.49
------------------------------------------------------------------------------
Outstanding at December 31, 1997
(40,802,392 exercisable at weighted average
price of $21.02) 84,672,142 $23.95
==============================================================================
</TABLE>
<PAGE>
Information related to options and SARs outstanding at December 31, 1997:
<TABLE>
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
Exercise Price Range $12.00-12.49 $12.50-19.99 $20.00-22.49 $22.50-29.19
-------------------------------------------------------------------------------------
Number of options and SARs:
Outstanding 67,560 9,877,430 18,978,694 55,748,458
Exercisable 67,560 9,877,430 18,944,252 11,913,150
Weighted average exercise price:
Outstanding $ 12.08 $ 17.50 $ 20.92 $ 26.13
Exercisable $ 12.08 $ 17.50 $ 20.92 $ 24.14
Weighted average remaining
contractual life 0.8 year 5.9 years 6.2 years 7.5 years
=====================================================================================
</TABLE>
The weighted-average grant-date fair value of each option granted during
1997, 1996 and 1995 was $5.65, $3.45 and $4.16.
Note 15. Shareowners' Equity
Common Stock Split - On January 30, 1998, the Board of Directors of SBC
(Board) declared a two-for-one stock split, effected in the form of a
stock dividend, on the shares of SBC's common stock. Each shareholder of
record on February 20, 1998 will receive an additional share of common
stock for each share of common stock then held. The stock will be issued
March 19, 1998. SBC will retain the current par value of $1.00 per share
for all shares of common stock.
Shareowners' Rights Plan - The Shareowners' Rights Plan (Plan) becomes
operative in certain events involving the acquisition of 20% or more of
SBC's common stock by any person or group in a transaction not approved by
the Board, or the designation by the Board of a person or group owning
more than 10% of the outstanding stock as an adverse person, as provided
in the Plan. Upon the occurrence of these events, each right, unless
redeemed by the Board, generally entitles the holder (other than the
holder triggering the right) to purchase an amount of common stock of SBC
(or, in certain circumstances, of the potential acquiror) having a value
equal to two times the exercise price of $160. The rights expire in
January 1999. After giving effect to stock splits in January 1998 and May
1993, effected in the form of a stock dividend, each share of common stock
represents one-quarter of a right.
The rights have certain antitakeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire SBC on
terms not approved by the Board.
The rights should not interfere with any merger or other business
combination approved by the Board since the rights may be redeemed.
Note 16. Acquisitions and Dispositions
In May 1997, a consortium made up of SBC and Telekom Malaysia Berhad, 60%
owned by SBC, completed the purchase of 30% of Telkom SA Limited (Telkom),
the state-owned telecommunications company of South Africa. SBC invested
$760, approximately $600 of which will remain in Telkom.
In October 1995, SBC combined its United Kingdom cable television
operations with those of TeleWest Communications, P.L.C., a publicly held
joint venture between Telecommunications, Inc. and U S WEST, Inc. The
resulting entity, TeleWest P.L.C. (TeleWest), is the largest cable
television operator in the United Kingdom. SBC owns approximately 15% of
the new entity and accounts for its investment using the cost method of
accounting. Restrictions expiring over the next three years exist on the
sale of SBC's interest in TeleWest. SBC recorded an after-tax gain of $111
associated with the combination.
During 1995, SBC purchased at auction PCS licenses in Los Angeles-San
Diego, California; San Francisco-Oakland-San Jose, California; Memphis,
Tennessee; Little Rock, Arkansas; and Tulsa, Oklahoma for approximately
$769. During 1996, SBC received several AT&T cellular networks in Arkansas
in exchange for SBC's PCS licenses in Memphis and Little Rock and other
consideration.
These acquisitions were primarily accounted for under the purchase method
of accounting. The purchase prices in excess of the underlying fair value
of identifiable net assets acquired are being amortized over periods not
to exceed 40 years. Results of operations of the properties acquired have
been included in the consolidated financial statements from their
respective dates of acquisition.
The above developments did not have a significant impact on consolidated
results of operations for 1997 or 1995, nor would they had they occurred
on January 1 of the respective periods.
Note 17. Additional Financial Information
- -------------------------------------------------------------------------------
December 31,
----------------------
Balance Sheets 1997 1996
- -------------------------------------------------------------------------------
Accounts payable and accrued liabilities
Accounts payable $ 2,848 $ 2,741
Accrued taxes 1,108 893
Advance billing and customer deposits 699 611
Compensated future absences 524 479
Accrued interest 306 279
Accrued payroll 315 194
Other 2,088 1,387
- -------------------------------------------------------------------------------
Total $ 7,888 $ 6,584
===============================================================================
- -------------------------------------------------------------------------------
Statements of Income 1997 1996 1995
- -------------------------------------------------------------------------------
Interest expense incurred $ 1,067 $ 948 $ 1,000
Capitalized interest (120) (136) (43)
- -------------------------------------------------------------------------------
Total interest expense $ 947 $ 812 $ 957
===============================================================================
Allowance for funds used during
construction - - $ 48
===============================================================================
- -------------------------------------------------------------------------------
Statements of Cash Flows 1997 1996 1995
- -------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 920 $ 799 $ 974
Income taxes $ 410 $ 1,283 $ 1,220
- -------------------------------------------------------------------------------
No customer accounted for more than 10% of consolidated revenues in 1997,
1996 or 1995.
Several subsidiaries of SBC have negotiated contracts with the
Communications Workers of America (CWA). Approximately 67% of SBC's
employees are represented by the CWA. Contracts covering an estimated
77,000 employees between the CWA and several SBC subsidiaries end in 1998.
New contracts are scheduled to be negotiated in 1998.
<PAGE>
Note 18. Quarterly Financial Information (Unaudited)
- --------------------------------------------------------------------------------
Basic
Earnings Stock Price (3)
(Loss) per --------------------------
Calendar Total Operating Net Income Common
Quarter Operating Income (Loss) Share (3) High Low Close
Revenues(4) (Loss)
- --------------------------------------------------------------------------------
1997
First (1)$ 5,973 $ 1,586 $ 857 $ 0.47 $ 29.125 $ 24.813 $ 26.250
Second (1) 5,921 (933) (787) (0.43) 30.938 24.625 30.938
Third (1) 6,329 1,472 816 0.45 31.125 26.781 30.719
Fourth (1) 6,633 1,045 588 0.32 38.063 30.000 36.625
- ------------------------------------------
Annual(1)$ 24,856 $ 3,170 $ 1,474 $ 0.81
================================================================================
1996
First (2)$ 5,564 $ 1,458 $ 888 $ 0.48 $ 30.125 $ 24.875 $ 26.313
Second 5,731 1,489 803 0.44 25.375 23.125 24.625
Third 5,948 1,532 867 0.47 25.500 23.000 24.063
Fourth 6,202 1,357 721 0.39 27.625 23.500 25.938
- ------------------------------------------
Annual(2)$ 23,445 $ 5,836 $ 3,279 $ 1.78
================================================================================
(1)Net income (loss) includes $90 first quarter pension settlement gain for
1996 retirements (see Note 12), $1.6 billion second quarter charges related
to post-merger initiatives (see Note 3), $43 and $360 of third and fourth
quarter merger integration costs and customer number portability expenses and
$33 fourth quarter gain on sale of SBC's interests in Bell Communications
Research, Inc.
(2)Net Income and Earnings per Common Share reflect a cumulative effect of
accounting change of $90 or $0.05 per share from change in accounting for
directory operations.
(3)Restated to reflect two-for-one stock split declared January 30, 1998. Stock
prices have not been adjusted to reflect the merger with PAC.
(4) Quarterly information has been restated to conform to the current
presentation of promotional discounts.
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareowners
SBC Communications Inc.
We have audited the accompanying consolidated balance sheets of SBC
Communications Inc. (the Company) as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareowners' equity, and cash flows
for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the 1996 and 1995
financial statements of Pacific Telesis Group, a wholly-owned subsidiary, which
statements reflect total assets constituting 42% of the Company's related 1996
consolidated financial statement total and which reflect total operating
revenues constituting approximately 41% and 42% of the Company's related
consolidated financial statement totals for the years ended December 31, 1996
and 1995, respectively. Those statements were audited by other auditors whose
report, which has been furnished to us, included an explanatory paragraph that
describes the change in its method of recognizing directory publishing revenues
and related expenses, and the discontinuance of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation." Our opinion, insofar as it relates to the 1996 and 1995 data
included for Pacific Telesis Group, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and, for 1996 and 1995, the report of other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of SBC
Communications Inc. at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, Pacific Bell, a
subsidiary of Pacific Telesis Group, changed its method of recognizing directory
publishing revenues and related expenses effective January 1, 1996. As discussed
in Note 2 to the consolidated financial statements, SBC Communications Inc.
discontinued its application of Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation" in 1995.
ERNST & YOUNG LLP
San Antonio, Texas
February 20, 1998
<PAGE>
Report of Management
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. The integrity and objectivity of the
data in these financial statements, including estimates and judgments relating
to matters not concluded by year end, are the responsibility of management, as
is all other information included in the Annual Report, unless otherwise
indicated.
The financial statements of SBC Communications Inc. (SBC) have been audited by
Ernst & Young LLP, independent auditors. Management has made available to Ernst
& Young LLP all of SBC's financial records and related data, as well as the
minutes of shareowners' and directors' meetings. Furthermore, management
believes that all representations made to Ernst & Young LLP during its audit
were valid and appropriate.
Management has established and maintains a system of internal accounting
controls that provides reasonable assurance as to the integrity and reliability
of the financial statements, the protection of assets from unauthorized use or
disposition and the prevention and detection of fraudulent financial reporting.
The concept of reasonable assurance recognizes that the costs of an internal
accounting controls system should not exceed, in management's judgment, the
benefits to be derived.
Management also seeks to ensure the objectivity and integrity of its financial
data by the careful selection of its managers, by organizational arrangements
that provide an appropriate division of responsibility and by communication
programs aimed at ensuring that its policies, standards and managerial
authorities are understood throughout the organization. Management continually
monitors the system of internal accounting controls for compliance. SBC
maintains an internal auditing program that independently assesses the
effectiveness of the internal accounting controls and recommends improvements
thereto.
The Audit Committee of the Board of Directors, which consists of eight directors
who are not employees, meets periodically with management, the internal auditors
and the independent auditors to review the manner in which they are performing
their responsibilities and to discuss auditing, internal accounting controls and
financial reporting matters. Both the internal auditors and the independent
auditors periodically meet alone with the Audit Committee and have access to the
Audit Committee at any time.
/s/ Edward E. Whitacre Jr.
Edward E. Whitacre Jr.
Chairman of the Board and
Chief Executive Officer
/s/ Donald E. Kiernan
Donald E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
Stock Trading Information
Trading: SBC is listed on the New York, Chicago and Pacific stock exchanges and
The Swiss Exchange. SBC is traded on the London Stock Exchange through the SEAQ
International Markets facility.
Ticker symbol (NYSE): SBC
Newspaper stock listing: SBC or SBC Comm
APPENDIX
All page numbers referenced in this Exhibit and the Form 10-K relate to the
printed Annual Report. The order of the sections is as they appear in the
printed Annual Report. The colored graphs and related footnotes that appear in
the printed document are approximately 1-1/4 inches by 2-1/4 inches. The Stock
Data section appears on the back cover.
The section titled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appears on pages 19-30. The text of this section
appears in two columns.
A stacked bar graph titled "Income From Continuing Operations Before
Extraordinary Loss and Accounting Changes (dollars in billions)" appears in the
right column towards the bottom of page 19. The graph shows Income From
Continuing Operations Before Extraordinary Loss and Accounting Changes for the
past five years. The graph also shows special charges for 1993 and 1997 above
Income From Continuing Operations Before Extraordinary Loss and Accounting
Changes. The actual figures for both items are listed on the graph. Listed below
are the plot points, with the first column representing Income From Continuing
Operations Before Extraordinary Loss and Accounting Changes and the second
column representing Special Charges:
1993 1.6 .9
1994 2.8
1995 3.0
1996 3.2
1997 1.5 1.9
The following footnote appears at the side of the graph: Results for 1997 and
1993 were affected by special charges.
A stacked bar graph titled "Distribution of Revenues (dollars in billions)"
appears in the left column on page 20 and below the section titled "Local
Service". The graph shows various categories of revenue distribution for the
past five years. The actual figures are listed on the graph. Listed below are
the plot points by category:
Local Network Directory
Year Total service access Long-distance advertising Other
---- ----- ------- ------ ------------- ----------- -----
1993 20.1 8.7 5.0 3.0 1.9 1.5
1994 21.0 9.2 5.2 2.9 2.0 1.7
1995 21.7 10.3 5.5 2.1 2.0 1.8
1996 23.4 11.4 5.8 2.2 2.0 2.3
1997 24.9 12.6 5.8 2.1 2.1 3.0
The following footnote appears at the side of the graph: Operating revenue
growth has been driven by local service growth.
In the section titled "Operating Environment and Trends of the Business", a
stacked bar graph titled "Access Lines " appears in the right column on page 23
above the subsection titled "State Regulation". The graph shows access lines in
total and by state for the past five years. Total access line figures are listed
on the graph. Listed below are the plot points:
- ----------------------------------------------------------------------------
Year Total Arkansas California Kansas Missouri Nevada Oklahoma Texas
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
1993 28.2 .8 14.8 1.1 2.2 .3 1.4 7.6
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
1994 29.1 .8 15.3 1.2 2.2 .3 1.4 7.9
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
1995 30.3 .9 15.8 1.2 2.3 .3 1.5 8.3
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
1996 31.8 .9 16.6 1.3 2.4 .3 1.5 8.8
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
1997 33.4 .9 17.4 1.3 2.5 .3 1.7 9.3
- ----------------------------------------------------------------------------
The following footnote appears at the side of the graph: Access lines in
California and Texas account for 80% of total access lines.
A stacked bar graph titled "Local Service (dollars in billions)" appears in the
left column at the top of page 26. The graph shows landline and wireless local
service revenues for the past five years. The actual figures are listed on the
graph. Listed below are the plot points:
- -------------------------------------------------
Year Total Landline Wireless
- -------------------------------------------------
- -------------------------------------------------
1993 8.7 7.4 1.3
- -------------------------------------------------
- -------------------------------------------------
1994 9.2 7.5 1.7
- -------------------------------------------------
- -------------------------------------------------
1995 10.3 8.1 2.2
- -------------------------------------------------
- -------------------------------------------------
1996 11.4 8.8 2.6
- -------------------------------------------------
- -------------------------------------------------
1997 12.6 9.6 3.0
- -------------------------------------------------
The following footnote appears at the side of the graph: Wireless local service
revenues have more than doubled in the last four years.
A bar graph titled "Wireless Penetration (network-based non-PCS)" appears in the
left column on page 27 above the subsection titled "Wireless Local Service". The
graph shows the percentage of Wireless Penetration for network-based non-PCS
services for the past five years. Actual figures are listed on the graph. Listed
below are the plot points:
1993 5.7%
1994 7.4%
1995 9.0%
1996 10.8%
1997 12.2%
The following footnote appears at the side of the graph: SBC's wireless
penetration for its network-based non-PCS services is among the highest in the
industry.
A bar graph titled "Capital Expenditures (dollars in billions)" appears in the
left column on page 29 and below the section titled "Liquidity and Capital
Resources" and the subsection titled "Capital Expenditures and Other
Commitments". The graph shows Capital Expenditures for the past five years. The
actual figures are listed on the graph. Listed below are the plot points:
1993 4.0
1994 4.0
1995 4.3
1996 5.5
1997 5.8
The following footnote appears at the side of the graph: Continued growth and
the build-out of PCS networks led to increases in capital expenditures.
A bar graph titled "Dividends (whole dollars adjusted for stock split)" appears
in the left column at the top of page 30 above the subsection titled "Cash,
Lines of Credit and Cash Flows". The graph shows dividends for the past 5 years.
The actual figures are listed on the graph. Listed below are the plot points:
1993 0.755
1994 0.790
1995 0.825
1996 0.860
1997 0.895
The following footnote appears at the side of the graph: SBC has increased its
dividend every year since divestiture.
EXHIBIT 21
PRINCIPAL SUBSIDIARIES OF SBC COMMUNICATIONS INC.
AS OF DECEMBER 31, 1997
State of Conducts
Name Incorporation Business Under
Southwestern Bell Missouri Same
Telephone Company
Southwestern Bell Dually incorporated in Same
Mobile Systems, Inc. Delaware and Virginia
SBC International, Inc. Delaware Same
Southwestern Bell Missouri Same
Yellow Pages, Inc.
SBC Media Ventures, Inc. Delaware Same
Pacific Telesis Group Nevada Same
EXHIBIT 23-a
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of SBC Communications Inc. (SBC) of our report dated February 20, 1998, included
in the 1997 Annual Report to Shareowners of SBC.
Our audits also included the financial statement schedules of SBC listed in Item
14(a). These schedules are the responsibility of SBC's management. Our
responsibility is to express an opinion based on our audits. In our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8) pertaining to the SBC Savings Plan and Savings and Security Plan
(Nos. 33-54309 and 333-24295), the Stock Savings Plan (Nos. 33-37451 and
33-54291), the SBC Communications Inc. 1992 Stock Option Plan (No. 33-49855) and
the SBC Communications Inc. 1995 Management Stock Option Plan (No. 33-61715),
and in the Registration Statements (Form S-3) pertaining to the SBC
Communications Inc. Direct Stock Purchase and Reinvestment Plan (Nos. 333-44553
and 333-08979), and SBC Communications Capital Corporation and SBC
Communications Inc. (Nos. 33-45490 and 33-56909), and in the Registration
Statement (Form S-4) pertaining to SBC Communications Inc. (No. 333-45837), and
in the related Prospectuses of our report dated February 20, 1998, with respect
to the consolidated financial statements incorporated herein by reference, and
our report included in the preceding paragraph with respect to the financial
statement schedules included in this Annual Report (Form 10-K) for the year
ended December 31, 1997.
ERNST & YOUNG LLP
San Antonio, Texas
March 10, 1998
EXHIBIT 23-b
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Annual Report for the year ended December 31,
1997 on Form 10-K and the accompanying Proxy Statement dated on or about March
11, 1998 of SBC Communications Inc., of our report dated February 27, 1997, on
our audits of the consolidated financial statements and financial statement
schedule of Pacific Telesis Group and Subsidiaries as of December 31, 1996, and
for each of the two years in the period then ended, as included in Pacific
Telesis Group's annual report on Form 10-K for the year ended December 31, 1996.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8) pertaining to the SBC Savings Plan and Savings and Security Plan
(Nos. 33-54309 and 333-24295), the Stock Savings Plan (Nos. 33-37451 and
33-54291), the SBC Communications Inc. 1992 Stock Option Plan (No. 33-49855)and
the SBC Communications Inc. 1995 Management Stock Option Plan (No. 33-61715) and
in the Registration Statements (Form S-3) pertaining to the SBC Communications
Inc. Direct Stock Purchase and Reinvestment Plan (Nos. 333-44553 and 333-08979),
and SBC Communications Capital Corporation and SBC Communications Inc. (Nos.
33-45490 and 33-56909), and in the Registration Statement (Form S-4) pertaining
to SBC Communictions Inc. (No. 333-45837), and in the related Prospectuses of
our report dated February 27, 1997, on our audits of the consolidated financial
statements and financial statement schedule of Pacific Telesis Group and
Subsidiaries as of December 31, 1996 and for each of the two years in the period
then ended, as included in Pacific Telesis Group's annual report on Form 10-K
for the year ended December 31, 1996.
COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
San Francisco, California
March 11, 1998
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is an officer and a director of the
Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints James D.
Ellis, Donald E. Kiernan, Alfred G. Richter, Jr., Judith M. Sahm, or any one of
them, all having addresses in the City of San Antonio and State of Texas, his
attorney, for him and in his name, place and stead, and in his office and
capacity in the Corporation as an officer and a director, to execute and file
such annual report, and thereafter to execute and file any amendment or
amendments thereto, hereby giving and granting to said attorneys full power and
authority to do and perform each and every act and thing whatsoever requisite or
necessary to be done in and concerning the premises, as fully to all intents and
purposes as he might or could do if personally present at the doing thereof,
hereby ratifying and confirming all that said attorneys may or shall lawfully
do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/Edward E. Whitacre, Jr.
- ----------------------------------
Edward E. Whitacre, Jr.
Director and Chairman of the Board
and Chief Executive Officer
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is an officer and a director of the
Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E.
Whitacre, Jr., James D. Ellis, Alfred G. Richter, Jr., Judith M. Sahm, or any
one of them, all having addresses in the City of San Antonio and State of Texas,
his attorney, for him and in his name, place and stead, and in his office and
capacity in the Corporation as an officer, to execute and file such annual
report, and thereafter to execute and file any amendment or amendments thereto,
hereby giving and granting to said attorneys full power and authority to do and
perform each and every act and thing whatsoever requisite or necessary to be
done in and concerning the premises, as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ Royce S. Caldwell
- --------------------------------
Royce S. Caldwell
President-SBC Operations and
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is an officer of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Edward E.
Whitacre, Jr., James D. Ellis, Alfred G. Richter, Jr., Judith M. Sahm, or any
one of them, all having addresses in the City of San Antonio and State of Texas,
his attorney, for him and in his name, place and stead, and in his office and
capacity in the Corporation as an officer, to execute and file such annual
report, and thereafter to execute and file any amendment or amendments thereto,
hereby giving and granting to said attorneys full power and authority to do and
perform each and every act and thing whatsoever requisite or necessary to be
done in and concerning the premises, as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ D. E. Kiernan
- --------------------------------
D. E. Kiernan
Senior Vice President, Treasurer
and Chief Financial Officer
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ Clarence C. Barksdale
- ----------------------------------
Clarence C. Barksdale
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ James E. Barnes
- ----------------------------------
James E. Barnes
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ August A. Busch III
- ----------------------------------
August A. Busch III
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ Ruben R. Cardenas
- ----------------------------------
Ruben R. Cardenas
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ William P. Clark
- ----------------------------------
William P. Clark
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ Martin K. Eby, Jr.
- ----------------------------------
Martin K. Eby, Jr.
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ Herman E. Gallegos
- ----------------------------------
Herman E. Gallegos
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ Jess T. Hay
- ----------------------------------
Jess T. Hay
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ Bobby R. Inman
- ----------------------------------
Bobby R. Inman
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ Charles F. Knight
- ----------------------------------
Charles F. Knight
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ Mary S. Metz
- ----------------------------------
Mary S. Metz
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ Haskell M. Monroe, Jr.
- ----------------------------------
Haskell M. Monroe, Jr.
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ Toni Rembe
- ----------------------------------
Toni Rembe
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ S. Donley Ritchey
- ----------------------------------
S. Donley Ritchey
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ Richard M. Rosenberg
- ----------------------------------
Richard M. Rosenberg
Director
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT, WHEREAS, SBC COMMUNICATIONS INC., a Delaware corporation,
hereinafter referred to as the "Corporation," proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, an annual report on Form 10-K, and
WHEREAS, the undersigned is a director of the Corporation;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Edward E. Whitacre, Jr., James D. Ellis, Donald E. Kiernan, Alfred G.
Richter, Jr., Judith M. Sahm, or any one of them, all having addresses in
the City of San Antonio and State of Texas, the undersigned's attorney,
for the undersigned and in the undersigned's name, place and stead, and in
the undersigned's office and capacity in the Corporation as a director, to
execute and file such annual report, and thereafter to execute and file
any amendment or amendments thereto, hereby giving and granting to said
attorneys full power and authority to do and perform each and every act
and thing whatsoever requisite or necessary to be done in and concerning
the premises, as fully to all intents and purposes as the undersigned
might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do,
or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned executed this Power of Attorney the
30th day of January 1998.
/s/ Patricia P. Upton
- ----------------------------------
Patricia P. Upton
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SBC
COMMUNICATIONS INC.'S DECEMBER 31,1997 CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 398
<SECURITIES> 320
<RECEIVABLES> 5,410
<ALLOWANCES> 395
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 7,062
<PP&E> 65,286
<DEPRECIATION> 37,947
<TOTAL-ASSETS> 42,132
<CURRENT-LIABILITIES> 10,252
<BONDS> 12,019
0
0
<COMMON> 934
<OTHER-SE> 8,958
<TOTAL-LIABILITY-AND-EQUITY> 42,132
<SALES> 0<F2>
<TOTAL-REVENUES> 24,856
<CGS> 0<F3>
<TOTAL-COSTS> 9,488
<OTHER-EXPENSES> 4,922
<LOSS-PROVISION> 523
<INTEREST-EXPENSE> 947
<INCOME-PRETAX> 2,337
<INCOME-TAX> 863
<INCOME-CONTINUING> 1,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,474
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.80
<FN>
<F1> THIS AMOUNT IS IMMATERIAL.
<F2> NET SALES OF TANGIBLE PRODUCTS IS NOT MORE THAN 10% OF TOTAL OPERATING
REVENUES AND THEREFORE HAS NOT BEEN STATED SEPARATELY IN THE FINANCIAL STATEMENTS
PURSUANT TO REGULATION S-X, RULE 5-03(B). THIS AMOUNT IS INCLUDED IN THE "TOTAL
REVENUES" TAG.
<F3> COST OF TANGIBLE GOODS SOLD IS INCLUDED IN COST OF SERVICES AND PRODUCTS IN THE
FINANCIAL STATEMENTS AND THE "TOTAL-COST" TAG, PURSUANT TO REGULATION S-X,RULE
5-03(B).
</FN>
</TABLE>
EXHIBIT 99-c
REPORT OF THE INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareowner of Pacific Telesis Group:
We have audited the consolidated balance sheet of Pacific Telesis Group (a
wholly owned subsidiary of SBC Communications Inc. effective April 1, 1997) and
Subsidiaries (the "Company"), as of December 31, 1996, the related consolidated
statements of income, shareowners' equity and cash flows for each of the two
years in the period then ended, and the financial statement schedule as of and
for the two years ended December 31, 1996, as included in the Company's annual
report on Form 10-K for the year ended December 31, 1996. These consolidated
financial statements and the financial statement schedule are the responsibility
of management. Our responsibility is to express an opinion on the consolidated
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pacific
Telesis Group and Subsidiaries as of December 31, 1996, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein as of and for the two years ended
December 31, 1996.
As discussed in Note A to the consolidated financial statements, Pacific Bell, a
subsidiary of Pacific Telesis Group, changed its method of recognizing directory
publishing revenues and related expenses effective January 1, 1996. Also
discussed in Note A, Pacific Bell discontinued its application of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" during 1995.
COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
San Francisco, California
February 27, 1997
